Ofgem to introduce monitoring for price cap exempt tariffs

Energy suppliers that hold derogations from the default tariff cap will be subject to annual monitoring requirements to check they comply with the rules, Ofgem has confirmed.

The energy regulator has issued a request for information to the three suppliers which currently have derogations to collect quantitative and qualitative information on their total and renewable costs.

Under legislation which introduced the price cap in 2019, Ofgem has the discretion to exempt certain renewable energy tariffs from the cap. The criteria includes:

• The tariff is a standard variable tariff (SVT) that consumers have to be on;
• By consumers being on the tariff, support is given to renewables to an extent that is materially greater than that which is brought about as a result of subsidies, obligations or other mandatory mechanisms and;
• The cost to the licensee of supplying electricity/gas by virtues of the tariff is materially greater than the level of the default tariff cap for reasons that are directly attributable to the support that the tariff provides to renewables.

Currently Good Energy, 100Green (formerly Green Energy UK) and Ecotricity are subject to derogations as they meet the above criteria.

Initially, the price cap was subject to a sunset clause which meant that it was due to expire in 2023, along with the derogations to the cap. However, with the Energy Prices Act gaining Royal Ascent last year, the cap will now apply indefinitely, unless removed by the secretary of state.

As such, the regulator wants to ensure suppliers continue to follow the rules of the derogation and is therefore introducing new monitoring requirements.

In a letter to the industry Dan Norton, the regulator’s price cap deputy director, explained: “We consider the introduction of the Energy Prices Act 2022 to support the case for more frequent monitoring of existing derogations, which we expect to improve transparency and compliance as per the terms of our derogation decisions and guidance.

“Therefore…we are introducing periodic, typically annual, monitoring requirements for any new or existing derogations. These new monitoring requirements will focus on ensuring any derogations remain eligible as per the decision letters, guidance and underlying legislation.

“For existing derogations, where the decision letter includes aspects that deviate from the guidance, the requirements in the decision letter will take precedence.”

The first annual submission will start at the end of this month and will apply to all existing derogations for the preceding year (1 April 2022 – 31 March 2023).

Earlier this year Good Energy and Ovo apologised to thousands of customers and paid out a combined £4 million over their failure to correctly apply price protections put in place at the height of the energy crisis.

Almost 7,000 Good Energy customers were overcharged a total of £391,650 in regards to the price cap and Energy Price Guarantee between January 2019 and October 2022.

Those affected also included a number of Good Energy customers on a derogated tariff.

The supplier reported the matter to Ofgem “as soon as it was apparent” and has since submitted an improvement plan to the regulator, paying out a total of £2 million as a result of its failings.