Source · Select Committees · Public Accounts Committee
Recommendation 15
15
Acknowledged
Energy customers are either on non-default tariffs, where they have made an active choice about...
Conclusion
Energy customers are either on non-default tariffs, where they have made an active choice about their energy tariff, usually fixing it at a certain rate, or on default tariffs, where they are more likely not to have done so. Since 2019, the government has capped the price per unit of gas and electricity for customers on standard default tariffs. In 2018, the Department determined that bills should be capped following findings from the Competition and Markets Authority that 70% of customers of the six largest energy firms were on expensive default tariffs and customers were paying £1.4 billion more per year than they would be in a fully competitive market. The price cap limits the rates suppliers can charge for the standing charge (the portion of customers’ bills incurred regardless of the amount of gas and electricity used) and for each unit of electricity and gas used. It does not cap individuals’ total bills, which depend on how much energy they use. The price cap also does not cover the energy costs of businesses.33
Government Response Summary
The government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards, including options such as social tariffs, as part of wider retail market reforms.
Government Response
Acknowledged
HM Government
Acknowledged
4.2 The price cap has protected consumers from being overcharged for their energy for 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. 4.3 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. 4.4 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.