Ofgem declared last week that it intended to increase the number of energy price caps and amendments it makes each year. We swiftly examine what this can imply for you and discuss strategies for defending your energy rights during this trying time.
The Situation
The UK’s energy regulator, Ofgem, establishes a price cap twice a year for default tariffs. Examples include ordinary variable rate plans. As it simply considers typical usage, this does not imply that you will only pay the price specified by the price cap. Therefore, your expenses will increase if you consume more energy. Currently, the regulators alter the price cap in October and April.
Ofgem plans to change this cap four times each year starting in 2023. Your energy costs will therefore change every three months rather than every six months.
Energy Price Caps – Ofgem’s Reasoning
Energy suppliers must be able to pass along the current cost of energy when prices are rising. This is according to Ofgem, in order to remain viable. Over the past year, as the price of wholesale gas has increased, dozens of energy providers have gone out of business. Many in the sector have blamed price caps. It restricts how much energy providers can pass on to consumers. They do so in the form of growing expenses and some say this increases pressure on suppliers to absorb those costs. The sector has thus blamed failures on this cap. Ofgem has further stated that if energy prices start to decline, consumers would see benefits much sooner because the price cap will be lowered more frequently.
Energy Price Caps – Controversy Galore
Campaigners claim the reforms would prevent suppliers from raising prices beyond what is acceptable. Thy add however that they wouldn’t necessarily force them to lower their costs sooner. They also make the point that at a period of rising prices, the system protects energy suppliers rather than customers. It is obvious that if the price cap increases more frequently, that will allow suppliers to hit consumers more severely. Just last week, the top executive of E.ON UK warned that prices will remain exceptionally high. He predicted this to be true for at least 18 months. If suppliers believe an ever-changing price cap will render such deals obsolete, they will no longer be motivated to offer lengthier fixed rate deals to clients.
Additionally, they are recommending a “market stabilisation tax”. This is effectively an additional fee for the future. Better offers if the market returns to normal. This further penalises people striving to bring their energy costs back to normal after a difficult period.
Ofgem want the new regime to kick in from October, which means bills would change for the first time on 1 Jan 2023.
Your Options
I’m afraid not much at all. A shifting price cap will affect you. But it’s still best to go with a conventional variable rate agreement because, for the time being, fixed rate deals will be much more expensive. Your only choices up to that point are to minimise all energy waste. Also, make sure your direct debit appropriately reflects your usage. Challenge it if your DD has increased by a ludicrous amount. You must be given a justification for your supplier’s calculations. Many clients have discovered that these estimates were flawed (e.g., based on the erroneous property) and as a result, their DDs were decreased.
Energy Price Caps – Your Rights
Unfortunately, if you complain that the price of your energy is too high, suppliers will appeal to the price cap, which is a legal maximum. You have very little leeway if it can support the price it’s charging you based on your actual consumption. However, your energy provider is also required by law to treat you equitably in accordance with the requirements of its gas supply licence. This is especially true if you have any type of vulnerability, such as a disability, mental health issues, or a low income.
Before switching you to a prepayment metre, your supplier must make sure that they have discussed all of your alternatives with you and that any repayment arrangements are cheap and acceptable.
