Source · Select Committees · Public Accounts Committee
Recommendation 19
19
Acknowledged
The NAO found that the vast majority of costs resulting from supplier failures was to...
Conclusion
The NAO found that the vast majority of costs resulting from supplier failures was to make up the difference between what suppliers of last resort (SOLRs) could charge consumers under the cap and the cost of purchasing energy on the wholesale market.45 To address this lack of adaptability, in May 2022 Ofgem set out its preferred position to introduce quarterly, rather than six-monthly changes to the cap. It explained that this will allow suppliers to adjust their prices more frequently to reflect prices in the wholesale market. Ofgem noted that some customers really welcome more frequent changes in the price cap, but others really do not like it. In the longer term, Ofgem told us it may need to continue to adapt the price cap to the changing market and that it may also need to reconsider how it is structured in light of net zero.46 In August 2022, Ofgem announced that it would update the energy price cap every quarter rather than every six months, noting that the change would help provide the stability needed in the energy market and reduce the risk of further large-scale supplier failures.47 Vulnerable customers
Government Response Summary
The government acknowledges the committee's recommendation regarding the price cap and states that they will develop a new approach to consumer protection in energy markets from April 2024 onwards, including considering options such as social tariffs.
Government Response
Acknowledged
HM Government
Acknowledged
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.