Ofgem has launched a series of consultation documents on proposals to ensure that the energy price cap reflects the costs, risks and uncertainties facing energy suppliers.
The energy regulator’s five consultation documents are intended to canvass stakeholder views on the potential impact of increased wholesale volatility on the default tariff cap.
The price cap limits the rates a supplier can charge for their default tariffs. These include the standing charge and price for each kWh of electricity and gas. Ofgem sets the cap level for summer and winter based on the underlying costs to supply energy. The aim is to keep prices fair and make sure that suppliers reflect any drops in costs in rates.
One consultation paper will consider whether the recent market volatility has caused the level of the price cap to materially depart from the efficient cost level allowed for in the price cap.
Another consultation will look at updating the Default Tariff Cap methodology and setting maximum charges. It also sets out proposals to allow Ofgem to amend the cap outside of its routine six-month cycle for exceptional circumstances.
Ofgem previously concluded that the Covid-19 pandemic had resulted in debt-related costs for credit meter default tariff customers. One consultation sets out how Ofgem will determine these final additional debt-related costs.
Another consultation document will include proposed changes to allow for a more appropriate reflection of efficient costs associated with prepayment meter customers, according to Ofgem. Yet another document deals with the Energy Company Obligation scheme allowance methodology in the default tariff cap.
Stakeholder views are invited on any aspect of these documents by 17 December 2021.
The launch of the consultations comes as energy supplier Bulb went into administration this week. The ‘green’ energy supplier said the energy crisis in the UK meant the high energy wholesale prices, combined with the price cap, were leading suppliers to operate at “a significant loss”.
“Wholesale prices have skyrocketed and continue to be extremely volatile,” said a statement from Bulb. “The gas supply shortage combined with lower exports from Russia and increased demand means they remain high and unpredictable. Prices have hit close to £4.00 per therm recently, compared with 50p per therm a year ago.
“We’ve always been big supporters of the idea of a price cap to protect customers, but the current price cap is set at a level around 70p per therm, well below the cost of energy.”
The company will enter special administration, which is designed to protect Bulb customers and to ensure there is no change to customer supply and that their credit balance is protected.
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