Ofgem has come under fire for extending rules that will effectively prevent energy suppliers from offering deals that are significantly cheaper than the price cap if wholesale costs fall.
Martin Lewis, of MoneySavingExpert, said that the changes “sell consumers down the river” and were “killing hopes of firms launching cheaper deals”.
Citizens Advice, the charity, said the changes, which include a plan to change the energy price cap every three months, rather than every six from October, would “make it harder for people to save on their energy bills, even if wholesale prices drop”.
The regulator said that the rules were needed because otherwise energy suppliers that have bought energy in advance for their customers may be unable to recoup their costs. This could lead to more suppliers failing, resulting in further costs to consumers.
“We do not consider that we should prioritise the lowest possible prices for consumers at the present time over the need to enable efficient suppliers to finance their businesses,” the regulator said.
Lewis, who presents his own money-saving show on ITV, was so incensed by the plans that he launched into a foul-mouthed rant at Ofgem. He later apologised on social media, writing: “I’d like to formally apologise to the Ofgem staff for losing my rag in a background briefing just now and saying its changes are a ‘f***ing disgrace’.” He added: “I should’ve behaved better. My ire’s institutional not individual.” However, he did not withdraw his criticism of the proposals.
The energy market has been thrown into chaos by steep increases in wholesale prices over the past year that triggered dozens of supplier failures.
As wholesale prices have risen, millions of households have moved to standard tariffs limited by the price cap, which lags changes in the wholesale market and has prevented companies from passing on the price increases straight away. Fixed-price tariffs, which typically reflect current wholesale prices, have become more expensive than standard tariffs.
The regulator is worried about what will happen when wholesale prices fall again, since the time lag in the price cap means there will be a delay in passing on these savings to standard tariff customers too. If some companies start offering cheap fixed-price tariffs, millions of households could switch away from the standard tariffs before suppliers have had a chance to charge them for the expensive energy they’ve already bought.
In April, Ofgem introduced a charge so that suppliers poaching a customer when wholesale prices fell had to pay the losing supplier a fee — effectively deterring them from offering significantly cheaper deals. Now the regulator has increased the fee and said it will extend how long this system is in place.
Explaining why he had got so angry, Lewis wrote: “My breaking point was when hearing how instead of listening to calls to scrap its proposed market stabilisation charge, it was making it harsher to really ‘stop the harmful effects of competition’. Ie, staggeringly [it aims] to effectively stop firms undercutting the price cap.”
“Combine that with meeting industry’s demand for a new more frequent ‘every three month’ price cap change — carefully calibrated for the first three months to include six months of wholesale prices so the price factors in the highest wholesale rates in history so firms don’t miss out.”
Ofgem said that customers would still be able to “access significant gains based on falls in the wholesale market”. Jonathan Brearley, the regulator’s chief executive, said. “Our retail reforms will ensure that consumers are paying a fair price for their energy while ensuring resilience across the sector.
“Today’s proposed change would mean the price cap is more reflective of current market prices and any price falls would be delivered more quickly to consumers.