Ofgem facing ‘Hobson’s choice’ over price cap changes

An Ofgem director has said it is facing a “Hobson’s choice” when it comes to deciding how to adapt the price cap in light of the energy crisis.

The regulator has been considering switching to a quarterly price cap to reduce the time lag between market prices and their reflection in the cap.

During a Q&A on the first day of Utility Week’s Customer Summit on Wednesday (16 March) Ofgem’s director of retail Neil Lawrence was asked by Utility Week whether even a quarterly price cap will be sufficiently responsive considering how fast prices are changing in the current climate.

“It’s absolutely clear that the price cap wasn’t designed and the mechanisms that we have in place aren’t suitable for this level of volatility and we need to work really, really closely with everybody in the supply market to plot a path through that,” he said.

Lawrence continued: “I think what we need to be aware of as an industry now is we don’t want to do anything that’s going to make the situation worse. So we need some optionality on the steps that we take and we need to make sure that in those decisions we take that the risks are understood.

“That’s why we are working very, very closely with suppliers around that discussion and it’s not being done in a darkened room because for everything we do it appears that we are taking Hobson’s choice – taking a decision that appears to actually have negative consequences either way so we need to really wake up to that.

“I look forward to  getting into some of that debate, I am sure over the course of the next week, as we continue engage with suppliers and the industry on that very topic.”

Earlier this week, the regulator confirmed its intention to shorten the notice period between the announcement and implementation of a new price cap level from two months to one.