Source · Select Committees · Public Accounts Committee
Recommendation 4
4
Acknowledged
The price cap is providing only very limited protection to households from increases in the...
Recommendation
The price cap is providing only very limited protection to households from increases in the wholesale price of energy. The price cap limits the rates suppliers can charge customers for the standing charge and for each unit of electricity and gas used. The level at which Ofgem sets the price cap is largely driven by the wholesale price of energy. In winter 2021–22, prices in the wholesale market were six times their normal level, and by the summer of 2022 were ten times the normal level. In August 2022 Ofgem announced that the price cap for a typical customer paying by direct debit would rise to £3,549 a year in October 2022, from £1,971 in April
Government Response Summary
The government agrees and states that the price cap reflects the real cost of supplying energy. It notes that the Energy Price Guarantee (EPG) supersedes the cap as the main consumer price protection until March 2024, and it is developing a new approach to consumer protection in energy markets from April 2024 onwards.
Government Response
Acknowledged
HM Government
Acknowledged
The government agrees with the Committee’s recommendation. many years. The cap reflects the real cost of supplying energy to households, including the costs of purchasing wholesale gas and electricity, and the legislation requires Ofgem to set the cap at a fair level. However, the price cap was introduced when the energy market was much less volatile and was not designed to deal with the extreme wholesale prices seen in recent months. So, to protect households from high wholesale prices the government has introduced the Energy Price Guarantee (EPG), which supersedes the cap as the main consumer price protection until 31 March 2024. The price cap remains in place and now operates as the reference price for delivering the EPG. Ofgem continues to monitor the cap level and make necessary changes to ensure the cap continues to protect existing and future default tariff customers. As set out in the Autumn Statement 2022, the government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards. The government is committed to work with consumer groups and industry to consider the best approach, including options such as social tariffs, as part of wider retail market reforms. The objectives of this new approach will be to deliver a fair deal for consumers, ensure the energy market is resilient and investable over the long-term, and support an efficient and flexible energy system. Ofgem supports this approach and will work closely with the government on future measures.