The energy regulator should be given the power to introduce a special “circuit breaker” cap, limiting how much energy firms can charge customers during extreme circumstances, the architect of the original energy price cap has argued.
John Penrose, MP for Weston-super-Mare, called for Ofgem to be handed greater powers as the regulator itself revealed it would lead a consultation on the way the price cap is calculated to ensure if “appropriately reflects the costs, risks and uncertainties facing suppliers”.
Ofgem’s announcement coincided with reports that Bulb, Britain’s seventh-biggest domestic energy supplier could collapse in a matter of days.
Introduced in 2019, the price cap dictates the maximum amount firms can charge households for gas and electricity, and is adjusted by Ofgem twice a year, in April and October, based on the most recent estimated costs of supplying energy.
At the start of this month, Ofgem raised the cap for customers on default tariffs from £1,138 for a typical user to £1,277 – an increase of £139. The cap for prepayment customers also increased, from £1,156 to £1309. It attributed the hike to surging wholesale costs as much of the world began to emerge from lockdown.
Mr Penrose, who led calls in the Conservative Party for the introduction of the price cap, has expressed frustration that the system is “isn’t working” and believes Ofgem must be permitted to intervene with temporary, stricter, limits in certain circumstances.
“When things are normal, [the price cap] is supposed to stop customers being ripped off by ‘loyalty penalties’, where loyal customers on default tariffs are quietly charged miles more than people who switch. But it isn’t working, as I warned when it was launched,” Mr Penrose said.
“Millions of families are still being ripped off at the same time as prices are spiking and energy firms are going bust. We’ve got the worst of both worlds.”
He added: “Ofgem needs powers to protect energy customers…when – like now – there’s an international price spike.
“ We need an emergency circuit-breaker, like they have in stock markets, so regulators can intervene if prices suddenly rise or fall really fast.”
Such a measure, Mr Penrose said, “would protect consumers in good times and in bad”.
But suppliers would strongly oppose such an approach, a senior industry figure said.
“The price cap was intended to ensure customers were charged a fair price. It was never about price protection, or about ensuring consumers don’t pay more than x,” they said.
“A fair price is just what [the energy] costs.”
Commenting on Ofgem’s forthcoming consultation on the price cap Energy UK, the trade association for the UK energy industry, said: “We welcome the confirmation Ofgem has offered today that urgent action is needed to address the many challenges facing the sector exposed by the recent unprecedented rises in gas and electricity prices.
“We need to ensure we have a robust, resilient, and competitive retail market, where suppliers have the confidence and ability to invest and innovate to support customers and deliver the smarter, more flexible low carbon system required to achieve net zero.”