Ofgem calls for change to price cap as bills fall
An average dual-fuel energy bill will fall below £2,000 a year for the first time since April 2022, saving households an average of £151 on the previous quarter.
Energy regulator Ofgem has announced the further reduction in the energy price cap for the last quarter of 2023 (Oct to Dec) by warning suppliers that “there should be no excuses” not to cut prices.
The cap will be set at an annual level of £1,923 for a dual fuel household paying by direct debit based on the current typical domestic consumption values (TDCV) rate.
The drop, the lowest level since October 2021, reflects further falls in wholesale energy prices, as the market stabilises and suppliers return to a healthier financial position after four years of loss making.
However, consumer groups said the cap will not be particularly helpful to those on low incomes who will still face high bills this winter on top of debts already accumulated in the last year.
The regulator admitted the shortcomings of the price cap and called for ministers to consider alternatives.
“While the price cap has protected households from the full extent of volatility and surges in wholesale prices over the last two years, it was originally introduced by the Government to protect the minority of consumers who did not switch rather than to cover the vast majority of consumers, as it does now,” it said.
“It is a blunt tool and in the current market it has costs and as well as benefit. It’s important to look at alternative models to examine whether they could work better with the current volatile market and the move to net zero. “
Regarding its latest move, Ofgem said it expects all suppliers to continue improving customer service, to support their most vulnerable customers and to shore up their financial resilience to prevent the kind of failures we saw two years ago.
It said it recognises that there is some “excellent best practice across the sector but expects this to be the norm with poor practice stamped out.”
Alongside changes to the price cap, Ofgem has also introduced measures to reduce costs for prepayment meter customers and ensure extra support for those facing disconnection from the network.
The price cap savings – which can be passed on more quickly to customers because of the price cap updating quarterly – continues the downward trend since prices peaked at £4,279. However, it remains well above the average before the energy crisis took hold in 2021 and the market remains volatile.
Jonathan Brearley, Ofgem CEO, said: “It is welcome news that the price cap continues to fall, however, we know people are struggling with the wider cost of living challenges and I can’t offer any certainty that things will ease this winter.
“That’s why we’ve introduced new measures to support consumers including reducing costs for those on pre-payment meters, and introducing a PPM code of conduct that all suppliers need to meet before they restart installation of any mandatory PPMs.
“There are signs that the financial outlook for suppliers is stabilising and reasonable profits are returning.
“With the small additional allowance we’ve made to Earnings Before Interest and Tax (EBIT), this means there should be no excuses for suppliers not to be doing all they can to support their customers this winter, and to reinforce this we’ll be introducing a consumer code of conduct which we will look to have in place by winter.
“This code will ensure there are clear expectations of supplier behaviours especially for their most vulnerable consumers with whom suppliers should be reaching out proactively, with compassion and understanding. There are great examples of suppliers already doing this but I want to see this become the norm in such an essential sector that has such a big impact on people’s lives.”
Ofgem said it understands that while suppliers cannot control wholesale prices or fix the wider cost of living pressures hitting their customers, now the market has stabilised, they must continue improving customer service and ensure that support across the board is accessible, responsive and understanding, including giving time to make pay arrangements and directing customers to further support and advice.
It said they must also invest in strengthening their financial resilience to protect consumers against the cost of supplier failure.
Additionally, while still low by pre-crisis levels, there are signs of more competitive fixed deals coming onto the market and levels of switching are slowly increasing.
“With a lower price cap and reasonable profits starting to return, there is an opportunity for this to continue to grow,” said the regulator.