Ofgem says its plan aims to spread the pain fairly, sparing pre-payment meter customers from shouldering the additional burden.
By James Sillars, Business reporter @SkyNewsBiz
The energy price cap is set to be lifted to help suppliers recover a record £3bn of bad debt accrued through unpaid gas and electricity bills, the industry regulator has announced.
Ofgem said on Friday it was consulting on proposals for a one-off cap adjustment of £16 – equivalent to around £1.33 a month – to be paid between April 2024 and March 2025.
Those on pre-payment meters would not be affected by the plan, the watchdog said, adding the sum it wanted to impose on households was down on an initial proposal of £17.
The energy watchdog said the £3bn debt pile was a result of the impact of the energy-driven cost of living crisis on household budgets
“The scale of this debt means that it is crucial that suppliers have sufficient funding to ensure they can meet the strict regulations Ofgem has in place around how they treat customers facing payment difficulties.
“This adjustment to the price cap will ensure suppliers have the resources to support customers struggling with debt.”
Ofgem is anxious to avoid a repeat of severe financial pressure on many suppliers after dozens, including Bulb, collapsed amid a spike in wholesale energy costs in 2021.
That crisis added about £82 to every single customer’s bill at the time as companies with more robust business models were appointed to take on the households left stranded.
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The price cap, which has come down since the unprecedented bills witnessed last winter, not only reflects market prices but also contains other mechanisms to allow firms to recover limited costs.
Tim Jarvis, Ofgem’s director for markets, said: “We know that cost of living pressure is hitting people hard and this is evident in the increase in energy debt reaching record levels.
“We have taken steps to ensure energy firms are taking better care of customers and treating people struggling with debt fairly, through our robust consumer standards, and that companies are getting in touch to offer support, such as affordable payment plans, where needed.”
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He added: “However, the record level of debt in the system means we must take action to make sure suppliers can recover their reasonable costs, so the market remains resilient, and suppliers are offering consumers support in managing their debts.
“The proposals set out today are not something we take lightly. However, we feel that they are necessary to address this issue. This approach will ensure the costs are recovered fairly, without penalising a particular group of customers.
“The price cap has helped to protect consumers from a volatile gas market. However, it remains a blunt instrument in a changing energy sector, and the way it works may need to change in the future, so customers continue to be protected.”
Ofgem said action to help those struggling to pay their bills this winter, which came into force on Thursday, included rules on the offer of debt repayment plans and holidays.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
