Source · Select Committees · Public Accounts Committee
Recommendation 18
18
Deferred
Ofgem told us that the price cap had not been sufficiently adaptable to the “once...
Recommendation
Ofgem told us that the price cap had not been sufficiently adaptable to the “once in a generation change” in wholesale prices during the winter of 2021–2022.43 We asked Ofgem whether it had considered the possibility of high wholesale energy prices in designing the price cap. Ofgem told us that it had envisaged that there would be changes in wholesale costs, and put in place what it thought would be sufficient mitigations, including considering reducing the enforcement of the price cap in extreme circumstances. But it recognised that these mitigations had not considered the scale of the changes that had been seen in the energy market, or the circumstances in winter 2021–22.44
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
Deferred
HM Government
Deferred
4.1 The government agrees with the Committee’s recommendation. Target implementation date: April 2024 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.