Quarterly cap ‘opens the door’ to large winter price hikes

Ofgem’s minded-to decision to introduce a quarterly price cap period from October has raised concerns that vulnerable customers could face large price hikes during the coldest months of the year.

Peter Smith, director of policy and advocacy at the charity National Energy Action (NEA), said the move “opens the door to significant price rises” over the coming winter.

Speaking to Utility Week, Smith said: “The changes that we are seeing in aggregate from Ofgem at the moment indicate that low income and vulnerable consumers aren’t their primary focus and the impact of this proposal in terms of raising energy prices during the coldest months isn’t something they have highlighted as a concern in their press response.

“They simply highlighted the fact that it opens the prospect that energy prices could be lower if wholesale prices drop.

“Sadly we are not in that world at the moment and whilst we recognise that this could help smooth out the increased ‘peaky’ nature of the price cap, the challenge that is going to create in the short term is very likely an increase upwards again of the energy price cap during the coldest months and potentially prices going up every couple of months.”

Meanwhile So Energy co-founder Simon Oscroft said while Ofgem’s minded-to decision is a “positive step” in reforming the retail market in response to volatility, suppliers may still be exposed to “significant risk”.

He said: “The current bi-yearly cap review leaves customers with huge bill shocks and suppliers exposed to significant volume risks which add cost to all customers.

“However, even a quarterly cap still exposes suppliers to significant risk and the cost of this ends up on customer bills.

“Moving to a relative price cap would help reduce risk and cost over the medium term for customers at the same time as ensuring loyalty is not penalised.”

Gillian Cooper, head of energy policy at Citizens Advice, said many energy customers will be worried about seeing prices change more frequently, rather than being locked in for six months.

She added: “These measures should reduce the risk of further supplier failures which have already left customers with a multi-billion pound bill. But they underline the need for a clear plan on how to protect families from further price hikes and support those struggling now.

“The government should urgently bring in more targeted support for people on the lowest incomes. Ofgem must ensure customers don’t pick up the tab for chaos in the energy market.”

Elsewhere, consumer advice expert Martin Lewis has apologised for his comments during a background briefing on the changes which was hosted by the regulator earlier today.

Writing on Twitter, he said: “I’d like to formally apologise to the Ofgem staff for losing my rag in a background briefing just now and saying its changes are a ‘f***** disgrace that sells consumers down the river’.

“I should’ve behaved better. My ire’s institutional not individual…”

“My breaking point was when hearing how instead of listening to calls to scrap its proposed market stabilisation charge, it was making it harsher to really ‘stop the harmful effects of competition’”, he later added.