Category: Ofgem

  • UK regulator Ofgem has announced a lower cap on sky-high energy bills from April. However, buyers will still pay more for gas and electricity because the government is also reducing financial assistance.

    Ofgem said the annual amount suppliers are able to charge an average household would be cut by nearly a quarter. It will fall to £3,280 from £4,279. This new figure shows how much consumers would pay on their suppliers’ most basic tariff if the government’s Energy Price Guarantee (EPG) was not present.

    Ofgem CEO Jonathan Brearley said that the fall mirrors a shift in the price of “wholesale energy for the first time since the gas crisis began”. However, he also warned that:

    prices are unlikely to fall back to the level we saw before the energy crisis.

    As BBC News has reported, the government’s EPG is indeed set to drop. It stated that:

    The typical annual household bill is set to rise from £2,100 to £3,000 in April because government help – known as the Energy Price Guarantee (EPG) – will become less generous and a £400 winter discount on all bills ends.

    ‘Not enough to help’

    Rocio Concha, of consumer pressure group Which?, noted:

    The price cap is coming down, but not by enough to help people who will face a sharp spike in their energy bills in April when the government reduces its financial help

    Market energy costs have slumped in recent months, leading to ludicrous profits for energy companies. Meanwhile, annual inflation in the UK remains above 10%. This is fives times the rate targeted by the Bank of England.

    Rising energy bills will always affect the poorest members of society most profoundly. Think tanks like the Resolution Foundation have pointed out that any increase in price without an increase in wages will result in more households plunging into fuel stress. This means that they spend more than 10% of their income on energy.

    As the Canary’s Steve Topple previously said:

    The level of difference between how hard energy companies are hitting the richest and poorest, coupled with the fact the government knows this and is barely acting is class war. That is, the rich and powerful are knowingly doing things that will suppress the poorest people and keep them in their poverty-stricken place…

    Decisions made by those at the top of society that will plunge 7.5 million families at the bottom into further poverty is class war.

    ‘Out-of-touch government’

    Soaring energy and food bills, coupled with rising interest rates, have triggered a cost of living crisis for millions of households. This has been accompanied by some of the most intense strike action in decades.

    Sharon Graham, general secretary of Unite, said:

    Ofgem’s latest manoeuvres on the energy price cap do next to nothing to ease the pressure on workers and communities already haunted by… their fuel bills

    This out-of-touch government is clearly preparing to pull the plug on protecting consumers and is totally abdicating any responsibility for dealing with the runaway profiteering of energy companies.

    Meanwhile, Rishi Sunak is resisting calls to offer inflation-matching pay rises for public-sector workers, notably thousands of nurses and teachers who are planning more strikes next month.

    The Tories in power can see that households are hurting. They know that bills will go up but plan to cut the EPG subsidy anyway, even though the reasons it was needed in the first place haven’t gone away.

    Nothing has changed. Except the government seems to simply be giving up the pretense that it cares about people being able to afford necessities such as cooking and staying warm.

    Additional reporting via Agence France-Presse

    Featured image via Flickr/ climatejusticecollective, cropped to 770*403 pixels

    By Alex/Rose Cocker

    This post was originally published on Canary.

  • Households will see the biggest rise in the cost of energy in living memory from Friday when bills increase by 54%, or almost £700, to just under £2,000 a year.

    Experts have urged householders to submit meter readings for gas and electricity to their supplier on Thursday to show exactly how much energy they have used ahead of Ofgem’s price cap increasing from April 1. This will prevent firms from estimating usage and potentially charging for energy used before April 1 at the higher rate.

    Rishi Sunak
    Chancellor Rishi Sunak has offered households a £200 loan to support higher energy bills (UK Parliament/Jessica Taylor/PA)

    Keep sending regular readings

    Households should also send regular meter readings, ideally on the same date each month, to prevent their supplier from estimating usage and potentially overcharging for it as they move into the summer months and use less heating.

    Gillian Cooper, head of energy policy at Citizens Advice, said:

    We’d recommend sending meter readings to your supplier ahead of the price cap rise on 1 April. This means your energy company will have an accurate picture of your usage before higher rates come in.

    If you’re struggling to pay your bill, speak to your energy provider as they have to help you. Citizens Advice can also provide you with free, independent support.

    The energy price cap for those on default tariffs who pay by direct debit is rising by £693 from £1,277 to £1,971 from April 1. Prepayment customers will see a bigger jump, with their price cap going up by £708, from £1,309 to £2,017.

    The regulator was forced to hike the energy price cap to a record £1,971 for a typical household as gas prices soared to unprecedented highs.

    “Quality of life for millions of people will plummet”

    Fuel poverty charity National Energy Action (NEA) warned the cost of heating an average home has now doubled in 18 months, leaving 6.5 million households unable to live in a warm safe home across the UK.

    NEA chief executive Adam Scorer said:

    This is the biggest energy price shock in living memory.

    Millions of people will be priced out of adequate levels of heating and power. For all the anticipation of these price rises, many people on the lowest incomes will be crushed by the reality.

    Quality of life for millions of people will plummet. Warm homes, cooked food, hot water, clean clothes – all cut back or cut out. Debt will spiral. Physical and mental health will suffer.

    This energy crisis is about to bite down hard on those least able to cope. Charities like NEA will try to pick up the pieces for those in greatest need. It will be a near impossible task.

    Last week, the UK Government chose not to prioritise support for those on the lowest incomes. It has crossed its fingers that the market will right itself. This ‘wait and see’ policy could cost lives next winter.

    An Ofgem spokeswoman said:

    We know this rise will be extremely worrying for many people.

    The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.

    Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.

    Sunak gives with one hand but takes with the other

    Chancellor Rishi Sunak pledged to “take the sting out” of the price rises, promising that all 28 million households in Britain would get a £200 up-front rebate on their energy bills from October. The Government will provide the cash for this, but it wants the money back so will hike bills by £40 per year over the next five years from 2023 to recoup its cash.

    If all goes to plan, wholesale energy prices will drop so households can pay back what they owe, without a major rise in bills. Some energy company insiders worry that while good in principle, the policy is too reliant on falls in global gas prices. But experts are not sure this will happen, at least not soon.

    Goldman Sachs has already warned that prices in the gas market are likely to remain at twice their usual levels until 2025. Sunak also promised a £150 council tax rebate for homes in bands A to D, something he said would cover around 80% of homes in England. He also promised £144 million to councils to support vulnerable people.

    By The Canary

    This post was originally published on The Canary.

  • Household energy bills could rise even further after gas prices soared by more than 70% to hit a new all-time high. It comes as fears over supplies from Russia continued to rock the market.

    Prices are now more than 20 times higher than they were just two years ago. They increased on Monday 7 March from what were already record highs last week.

    The price of a therm of gas, the commonly used measure, shot up to around 800p on Monday morning. It had been at around 460p on Friday 4 March.

    It’s likely to place an even greater burden on households. Energy prices are set to increase by more than 50% to close to £2,000 for the average household on 1 April.

    Regulation?

    Already last week, when gas was trading at much lower levels than on 7 March, experts predicted the price cap will rise by around £1,000 in October when it is next changed. The new price cap will be at more than £2,900.

    However, the rise could come sooner depending on what industry regulator Ofgem decides.

    Earlier this year, the watchdog gave itself new powers to step in between price cap periods to adjust the amount that suppliers can charge.

    It came as the price of oil also surged to its highest for 14 years. This was after Washington revealed it’s in talks with European allies over banning Russian oil imports.

    The prices of both commodities have shot up since Russian president Vladimir Putin ordered an unprovoked full-scale invasion of Ukraine less than two weeks ago.

    The EU relied on Russia for around 46% of its gas and around a quarter of its oil in the first part of 2021.

    So far, European and US sanctions have not directly targeted Russia’s energy exports – which prop up the country’s economy – because of fears of the knock-on effects.

    The UK is less reliant on Russian imports than many countries in Europe, but prices here tend to track those in the continent. However, prices in France are reportedly only rising by 4%.

    By The Canary

    This post was originally published on The Canary.

  • Britain’s energy price cap could be reviewed every three months or replaced altogether by a six-month fixed tariff under plans unveiled by regulator Ofgem following a flood of supplier failures. It’s been argued that rather than more regulations, what Britain needs is a re-nationalised energy sector.

    Changes

    The watchdog has set out three possible changes to the cap as part of a major overhaul in response to the collapse of 25 firms since the start of September. The cap, which limits increases in standard variable tariffs for more than 15 million households, is currently reviewed every six months, but Ofgem is proposing quarterly updates to help suppliers in times of extreme price volatility.

    Ofgem is also mooting the possibility of scrapping the cap in favour of a new fixed term default tariff, which would charge exit fees in a similar way to a fixed term mortgage. Under a third option, it would keep the cap in its current form but introduce a new “circuit-breaker” that could allow it to be updated in times of extreme price movements.

    It’s also looking at temporary measures that would allow it to address the current crisis, including allowing suppliers to charge consumers exit fees on some standard variable tariffs (SVTs) and ensuring suppliers make all new deals available to existing customers.

    The proposals come alongside plans unveiled by Ofgem to test the resilience of gas and electricity firms in regular health checks as it looks to strengthen the sector after swathes of suppliers have gone bust.

    The cost of gas in wholesale markets has risen by more than 500% in less than a year, which has put pressure on smaller suppliers. While its price cap has shielded Britons from some of the steepest rises in energy costs, suppliers have also blamed this for sending many under as they have been left supplying at a loss.

    A better way?

    On 2 December, an employee of energy company Bulb said:

    Since the privatisation of the energy sector back in 1990, energy companies have funnelled billions of pounds back to private shareholders. Since then, the price people pay for their energy bills has continued to increase despite the argument that a privatised energy sector would be more efficient and therefore cheaper

    Arguing the case for re-nationalisation, they said:

    If the taxpayer can absorb the cost during a crisis, the taxpayer should also reap the rewards once the current crisis subsides.

    They also said:

    The decisions made in the last week, where Bulb’s continued operations will be paid for by the UK government – via a “special administrator” – shows how straightforward nationalisation could be. We can look to the temporarily nationalised Eastern Railway as an example of how this could work. In the five years that the railway was nationalised and run by the Department for Transport, the railway generated £1 billion for the UK taxpayer. A nationalised Bulb, run by the Department for Business, Energy & Industrial Strategy, could focus on ensuring Bulb members aren’t negatively affected and have an initial aim of becoming profitable. If a nationalised Bulb continued to operate for the next 10 years, how much could it earn for the taxpayer? Initially, it could repay any debts accrued throughout this winter. Any further income generated could be re-invested to upgrade cold, drafty homes, making them both warm and affordable.

    The problems of private energy

    Ofgem admitted that while it protects consumer from price spikes, it “exposes suppliers to risks that are harder to manage at times of high energy price volatility”.

    It added:

    There is a risk that, if not tackled, this could lead to higher costs for consumers

    Any changes to the cap could be brought in next October, although suppliers have the chance to provide feedback on the plans by January, before a formal consultation is launched in the new year. Ofgem is also looking to bring in regular so-called stress tests from January, which will measure supplier resilience against a range of scenarios. If weaknesses are found, it will draw up improvement plans and even enforcement action if necessary to protect consumers.

    Similar stress tests were launched by the Bank of England for large lenders following the financial crisis when the taxpayer also bailed out private businesses. This situation – in which companies are free to enjoy profits but are protected from losses – has been described as “socialism for the rich”:

    Jonathan Brearley, chief executive of Ofgem, said:

    I’m setting out clear action so that we have robust stress testing for suppliers so they can’t pass inappropriate risk to consumers. I want to see more checks on staff in significant roles, and better use of data to help us regulate.

    Martin Lewis, founder of MoneySavingExpert.com, said the current energy price crisis has highlighted that “tougher protections are – and were – always needed”.

    Other proposals include a ban on customer growth when certain milestones are reached – such as 50,000 and 200,000 accounts – until Ofgem is happy with supplier balance sheet strength.

    Ofgem also wants to launch financial licence requirements and improve the “fit and proper” rules for energy firm directors, while ensuring boards have proper oversight and control of management.

    By The Canary

    This post was originally published on The Canary.

  • Energy supplier E.On has agreed to pay more than £650,000 after it left around 1.6 million households out of pocket over Christmas by charging them too early.

    Most customers were expecting direct debit payments for their energy bills to be taken at the beginning of January, but they were instead processed on Christmas Eve.

    The move may have forced some people to unexpectedly go into their bank overdrafts over the Christmas period.

    The problem gets worse

    E.On noticed the problem on December 23, told industry regulator Ofgem, and refunded most customers on December 29 and December 30.

    But, on New Year’s Eve, E.On discovered another 110,060 affected customers who had not previously been identified.

    Ofgem said this suggested the company did not act promptly to put things right, as it is obliged to under the terms of its licence.

    Ofgem

    Anna Rossington, the watchdog’s director of retail, said:

    Ofgem expects suppliers to adhere to the terms of contracts they have with customers, in particular the agreed direct debit payment dates.

    This failure is a reminder to suppliers that, when making changes to their systems, they need to undertake appropriate checks to avoid any unintended consequences for customers.

    Ofgem is always prepared to work with suppliers who have failed to comply with their obligations but who have self-reported and are determined to put things right, as E.On has done.

    Cost to customers

    The company estimated that the error could have cost customers at most £427,312 and has agreed to pay this, plus an extra £200,000, into Ofgem’s voluntary redress fund.

    The fund is set up to help vulnerable energy customers in the UK.

    E.On has also made £55,039 in redress and goodwill payments to customers who faced bank charges or out-of-pocket expenses because of the problem.

    Ofgem urged others who believe they suffered similar losses as a result to get in touch with the energy supplier.

    ‘Friendly credit hours’

    The problem happened after E.On tried to change so-called friendly credit hours. These hours are a system to ensure that households with pre-payment meters are not left without energy when the shops they normally top up at may be closed over a public holiday.

    Somehow this led to the 1.6 million customers on direct debits – who do not have pre-payment meters – being charged early.

    E.On chief executive Michael Lewis said:

    This error should not have happened and it was unfortunate that it was so close to Christmas.

    We apologised to those affected at the time and I apologise to them again now.

    As soon as we noticed the issue, we took immediate steps to put things right for our customers.

    By The Canary

    This post was originally published on The Canary.