Energy regulator Ofgem said will carry out a consultation on the method it uses for capping the energy bills paid by households in order to protect consumers but also enable suppliers to run a sustainable business.
The soaring price of gas has led to 13 energy supplies going out of business since the start of September as they were unable to pass on rising costs to consumers, whose energy bills are capped by Ofgem. The price cap was increased to GBP1,277 from October and is expected to rise further in April.
Many energy companies have called for a reform of the price cap and Ofgem today responded to their concerns by announcing a consultation.
“The unprecedented and unexpected rise in gas and electricity prices over recent months has put energy markets under severe strain,” Ofgem said in a letter to suppliers.
“As this period of uncertainty continues, and the pressure on the sector grows, we are taking steps to protect the short- and long-term interests of consumers, providing greater certainty for investors and strengthening the resilience of the sector.”
Ofgem said it will consult on the method it uses to calculate the price cap to ensure that it reflects the costs, risks and uncertainties facing energy suppliers.
“The price cap methodology includes a range of mechanisms to allow suppliers to recover uncertain costs based on what was considered reasonable at the time. We will consult on whether these existing mechanisms should be adjusted in light of the increased costs and risks facing suppliers,” it said.
It said it will look at an “enhanced approach” to how licence conditions are monitored and enforced “to ensure energy suppliers pursue a sustainable business model”.
Ofgem said the consultation will be launched in November, setting out the options it is considering and its position. A decision should then be published in February next year, after stakeholder responses have been considered.