Ofgem launches consultation on price cap future

Ofgem has today (29 May) launched a consultation on its proposed framework for assessing whether market conditions facilitate “effective competition”, in order for it to make a recommendation on the future of the price cap.

The regulator says that in the context of the review, it considers competition to be effective if it involves “rigorous rivalry between firms to win and to retain customers, and it results in good outcomes for most consumers in terms of what matters to them (for example price and quality of service)”.

Based on its definition, Ofgem identifies three broad conditions for effective competition. These are:

• Structural changes in the market should be developing well: these changes encompass reforms from the government and Ofgem as well as wider market developments.
• For instance, there should be no unaddressed anti-competitive conduct nor unnecessary barriers to consumers and market providers participating in the market. Consumers must be able to choose confidently and well, and on the supply-side there must be sufficient commercial opportunity to attract entry, innovation and investment.
• The competitive process should be capable of delivering good outcomes for most consumers, including for those who are less active in the market. Competition will not always deliver good outcomes for all consumers; some protection may be needed for those least able to represent their interests. These three conditions will be considered “in the round”.

Those who wish to share their views on the framework have until 12.30pm on 9 July 2019.

Speaking at Utility Week Live at the Birmingham NEC last week 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”.

“We can’t go back to the kind of public distrust that gave us the cap in the first place”, she added.

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.

• What does the public really thinks about the price cap? Read our exclusive survey findings here