Energy boss blames Ofgem’s price cap for causing ‘huge price increases’


An energy boss has blamed Ofgem’s price cap for causing ‘huge price increases’ after a fuel poverty charity warned that an increase to the cap next Spring could see the cost of heating the average home doubling since last April.

The National Energy Action today said that the average household gas bill could increase by £467 from £466 a year in October last year to £944 in April next year, meaning the cost of heating the average home will have doubled since last winter.

It also warned that average domestic dual fuel energy bills, which have already soared by more than £230 per customer compared to last year, could increase by a further £550 a year in the Spring amid exploding gas prices across Europe.

Lashing out at Ofgem’s role during the current crisis, Bill Bullen, the founder and CEO of energy supplier Utilita, told Radio 4’s Today programme that ‘we can’t duck the fact that we’re in this situation because of some pretty serious regulatory failures’.

He added that pre-paid customers are seeing meter balances decreasing ‘really rapidly’ because of the cold snap – meaning that ‘with these higher prices it is impacting on consumers that bit more’.

The warning comes as suppliers have been collapsing in recent weeks, after the price of gas spiked by as much as five times compared with the start of this year.

The biggest company to go bust so far is Bulb, whose 1.7 million households made it one of the top energy suppliers in the country.

Mr Bullen told the Today programme: ‘We can’t duck the fact that we’re in this situation because of some pretty serious regulatory failures.

‘The price capping regime of itself has led to huge price increases. I think it’s actually fair to argue that had we not had a price capping regime, we as a business would have been hedging our business much further forward than we currently do… and that would have actually saved customers a lot of money.

‘The regulator’s also been very focussed on customer churn and switching between suppliers, and that also has led to customer detriment in the long run because we now have a situation where suppliers who offered really cheap prices are have now gone out of business and we’re all having to pick up the tab for that.’

Adam Scorer, the chief executive of the National Energy Action, said: ‘The cost of living in the UK is at its highest level in a decade with household energy bills the biggest driver. When the costs of essential services go up, those on lowest incomes get hit hardest.

‘For people already on a budgetary knife-edge, the cost of keeping a family warm has exploded while budgets have collapsed. No amount of useful tips or savvy shopping can cope with that.’

At the moment the regulator caps the energy bills of more than 14 million households at £1,277 per year on average.

A consultation on potential changes will end in February, and they could be implemented at the beginning of April, when the price cap is set to change.

Most households in the UK pay for their gas and electricity together in a dual fuel deal, with those who pay a standard tariff typically protected by Ofgem’s price cap.

The state regulator introduced the cap to delay the impact of surging prices on household bills. The regime was set at its lowest level in October last year when energy prices were low, but has risen twice since then and experienced its biggest ever increase two months ago.

Energy firms which have collapsed in recent months claim Ofgem’s price cap has created an unmanageable market. They claim that the regime has prevented suppliers from passing on the increased costs to customers, leaving them unable to continue.

Because their customers have been moved onto tariffs with other suppliers in line with the price cap, hundreds of thousands of people on fixed rates who might have expected to be protected from soaring prices will now also be hit by the April cap.

The boss of energy regulator Ofgem, Jonathan Brearley, has said the regulator will need to reassess the price cap on energy bills.

The price cap is currently set so low that energy suppliers are having to pay more for the gas they buy than the amount they can sell it for.

Energy prices have spiked globally due to a series of issues aligning around the world. Increased demand from a reopening economy has been paired with higher demand from China, and a summer that was less windy than normal.

Even before potential changes, experts at analysts Cornwall Insight predict that energy bills will rocket to £1,660 per year for price cap customers.

A poll by NEA found six out of 10 British adults say they would reduce their heating use by a fair amount or a great deal if the cost of heating doubles. Some 85 per cent of UK residential buildings, or 23 million homes, are still currently connected to the gas grid, using a boiler and central heating system.

Source: Dailymail