Ofgem: Energy prices higher than last price cap forecast

In May, the energy regulator predicted the price cap would reach £2,800 when it’s next reviewed in October - meaning consumers would see an £800 increase in prices. However, Jonathan Brearley told the public accounts committee yesterday (11 July) that it was “clear” that the estimate for winter bills now looks too low. 

He explained: “It’s clear given the pricing dynamics we’re seeing, given the ongoing impact of the Russian invasion of Ukraine, that there is positive pricing pressure there - as in prices are looking higher than they did when we made that estimate. 

“But we don’t give an ongoing sort of commentary until we make our formal announcement.” 

It comes as energy market analyst Cornwall Insight updated its estimate for the next price cap, with it now sitting at £3,244 a year - with this rising to £3,363 for the average domestic consumer in the first quarter of 2023. 

These predicted price increases have been driven by the increasing volatility in the energy market due to the ongoing uncertainty regarding Russian gas flows into continental Europe - as well as more recent concerns such as the halted strike by Norwegian gas workers. 

Speaking at the public accounts committee, Ofgem boss Brearley - while he would not be drawn on exactly how much higher bills would be - said it was “clear”, given the current “pricing dynamics” and the ongoing war in Ukraine, that “prices are looking higher than they did when we made the estimate”. 

In addition to this, he told the committee there should have been tighter controls on energy companies entering the market. He said: “The problem was the ongoing requirements for suppliers themselves and we accept, with hindsight, they should have been tighter. 

“When we looked at a supplier failure prior to September of this year, although there have been costs, they weren’t anywhere near the order of magnitude of what we’ve seen.” 

The department of business’s permanent secretary Sarah Munby meanwhile informed the committee that ministers would “keep a close eye” on whether this policy should go further if bills rose higher than expected. 

Ofgem also told MPs it had found issues with direct debit demands from suppliers, during a review following accusations that companies increased customers’ direct debit payments by “more than is necessary”.