Adjusting the energy price ceiling could lock families into deals for six months | Business News

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Households could be tied up in six-month energy deals under proposals from Ofgem to change the price cap that protects millions of consumers – but the collapse of dozens of suppliers has also been blamed.

Deals, similar to fixed-term mortgages, will see users pay a tariff set by the regulator in the month their contract begins and are subject to exit fees if they leave early.

It is one of three proposed alternatives that Ofgem laid out as it launched consultations on regime change that has left energy companies at risk, with many stuck by rising wholesale energy prices.

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1:57 “We shouldn’t have seen a third of all suppliers fail”

The regulator stressed the urgency of an adjustment at a time when markets remain volatile – this week gas prices rose to near record highs previously seen in October.

The idea of ​​fixed deals is already popular with many families, who in recent years have opted to lock in energy bills, usually over a one-year contract.

But Ofgem’s energy price cap was designed to protect those who remained on the so-called standard variable tariffs (SVTs) – once seen as bogus deals that benefited those who weren’t savvy enough to look for the best rates elsewhere.

The shift to fixed-term deals could affect the 15 million households currently working in SVTs, locking them into contracts where, unlike at the moment, they would face an exit penalty.

The idea is to protect consumers and suppliers from price fluctuations.

Currently, the price cap is set every six months, and is designed to pass on savings to consumers when wholesale gas prices fall but allows suppliers to impose tariffs so they can still operate sustainably when those costs rise.

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1:56 Why the UK energy price cap ‘failed’

But there is a huge gap between when they are appointed and when they are introduced.

The current price cap was announced in August to be in effect in October and will run through April.

Since it was put in place, rising energy prices have driven more than 20 suppliers, mostly small operators, out of business – affecting four million customers.

Those who failed to “hedge” – a form of insurance against price hikes – were particularly at risk, but the regulator said that in times of volatility, well-managed businesses can also be left facing losses.

Without reform, she added, there was a risk of “more supplier failures and exits”.

Ofgem launched a preliminary advisory on changes to the power cap in October.

One solution I have now identified is to allow the price cap to be reviewed before the end of the six-month period if conditions lead to a “circuit breaker”.

Another could see the cap updated every three months instead of six months.

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2:33 Polp moves to management

In any of the three cases, you may move on the date you set the cap closer to the time the application begins.

The consultation proposals are drawn up alongside a set of new measures announced by Ofgem to enhance financial resilience in the energy sector.

They include stress tests for suppliers, which will come into effect in January, and reinforce existing “appropriate and appropriate” requirements for energy company executives.

The regulator will also consult on a requirement for small suppliers to pause any expansion plans until “the regulator is satisfied that it is financially resilient before it crosses certain milestones such as 50,000 and 200,000 customers.”

Chief Executive Officer Jonathan Brierley said: “Ofgem has worked hard to protect consumers as gas prices have risen more than 500% in less than a year.

“It is critical to note that the volatility in the gas market is far from over, and we continue to see significant market shifts.”

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