Energy bills could rise by £16 to cover customers’ debts

Households face paying extra on energy bills to cover customers’ bad debts under plans by the industry regulator.

Ofgem is proposing lifting the energy price cap by £16 between April next year and March 2025.

It estimates that debt levels for energy customers has risen to £2.9bn.

Last month, Ofgem announced it would raise the energy price cap, which limits the amount that companies can charge per unit of gas and electricity, from January.

It means the typical household will pay £1,928 a year for gas and electricity, up from the current £1,834 for a dual-fuel home.

On Friday, Ofgem said: “We understand the distress that rising debt in energy has on people.”

However, it added: “Rising debt levels create costs for suppliers.”

Under the proposals, households using pre-payment meters would not be charged the extra sum, which works out at £1.33 per month. These consumers pay as they go, meaning they do not build up the same amount of debt as households that are billed monthly.

Citizens Advice said it was seeing more people falling behind on energy bills as winter began.

The amount of debt and arrears faced by gas and electricity customers swelled to £2.9bn between July and September, up from £1.9bn in the same period last year.

Households in arrears – where a customer owes a supplier but has not worked out a payment plan – make up the vast majority of the overall figure, at more than £2bn.

Customers in debt, who have a re-payment agreement with their energy company, totalled £830m.

Ofgem has said in the past that if it did not implement an increase to cover bad debts, customers could end up paying more in the long run.

In 2021, wholesale energy prices soared and this caused about 30 companies to go out of business.

This led to every energy customer being charged an extra £82 to cover the costs of making sure that households were not cut off.

Energy prices spiked last year following Russia’s invasion of Ukraine, which resulted in sanctions against the country which is a major oil producer.

While prices have fallen – Brent crude oil is currently trading at $76 per barrel – they “remain high compared to historical levels”, Ofgem said.

Despite the government providing help for all households, including a £400 payment through the Energy Bill Support Scheme, the regulator said: “We have nevertheless seen debt levels rise as people struggle to meet the costs of higher bills.”

Ofgem has opened a consultation on its proposal to increase bills by £16 a year with a deadline of 17 January for suppliers and consumers to submit responses.