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Ofgem has announced it is to consult on the conditions required for the regulator to make a recommendation on the future of the price cap “in the next few weeks”.
Under legislation the price cap, which came into effect on 1 January this year, is a temporary measure which will lapse in 2023 at the latest.
Speaking at Utility Week Live at the Birmingham NEC yesterday (21 May) Mary Starks, Ofgem’s executive director of consumers and markets, said the conditions in which the regulator would want to lift the cap before 2023 is something it gave “a lot of thought to”.
She said: “One of the current things we are giving a lot of thought to is what are the conditions in which we would want to lift the cap before 2023 and what kind of regulatory settlement might we need after the cap to make sure that people still feel that prices are fair, that they are not open to exploitation and runaway energy prices again.
“We can’t go back to the kind of public distrust that gave us the cap in the first place.”
Starks added the discussion will focus around the conditions for effective competition, the requirement in legislation which requires the regulator to make an assessment on the conditions of effective competition to make a recommendation to the government as to whether to lift the cap.
She added that “broadly”, Ofgem will be looking at three things in making its assessment:
- Progress with structural reforms in the market
- How healthy the process of competition is in the market
- Looking at customer outcomes
Starks did not give an exact date as to when the document will be published.
She did however add that the legislation expressly provides an element of political judgement in making the decision.
The cap has proven to be a controversial measure which was introduced on 1 January and increased by £117 to £1,254 on 1 April.
The new level will be reviewed again later in the year.
Ofgem argues it protects around 11 million so-called vulnerable customers from being penalised by their suppliers for being loyal.
A number of big six energy suppliers have blamed the introduction of the cap on poor financial results and customer losses.
Recently British Gas owner Centrica was granted a judicial review into how Ofgem calculates wholesale costs for its default price cap.
The energy regulator insists it will “robustly defend” its approach to setting the cap but admitted there may be an “adjustment” of the price cap level if Centrica is successful in the review.
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