Ofgem promise energy price cap consultation

In an open letter to energy providers in the UK, Ofgem said it would consult on whether these existing mechanisms should be adjusted in light of the increased costs and risks facing suppliers.

After considering stakeholders responses, it then expects to publish a decision in February 2022, allowing any changes for the forthcoming price cap period - which would come in from 1 April 2022 - if appropriate to do so. In the immediate term, the regulator has said its priority remains to ensure energy consumers - both domestic and non-domestic - are protected.

It comes during a period of serious unrest in the energy market, which resulted in the energy price cap going up by £139 for people on a default tariff - from £1,138 to £1,277 - while prepayment customers saw an increase of £153 - going from £1,156 to £1,309. This has led to 16 energy companies going out of business over the past couple of months.

And there are growing doubts over a rescue deal that have raised fears that the UK could be on the brink of its biggest supplier collapse yet. According to The Guardian, sources have said the cost of rescuing Bulb - the UK’s seventh largest energy supplier - could be too steep for most companies to shoulder without government help.

As such, Ofgem has said it intends to “raise the bar” of what it expects from suppliers with regards to financial risk management. In its open letter, the regulator said it would do this by utilising existing licence conditions, reviewing where those licence conditions might need to be strengthened and guidance updated, and considering where new licence conditions may be needed.

The changes it plans to make going forward include using its information gathering powers to an even greater degree to conduct more regular assessments of supplier finances, and set firmer expectations on the capital investment that suppliers should have in place.

It’s also looking to take a more robust approach to assessing suppliers’ operational capacity, and where suppliers cannot demonstrate to meet Ofgem’s assessment criteria it can require independent audits.

Additionally, it expects suppliers to regularly demonstrate compliance with the requirement that individuals with significant managerial responsibility or influence in the business are fit and proper to occupy their role.