Ofgem, the UK's energy regulator, is considering a one-off adjustment to the price cap on energy bills to mitigate the risk of energy suppliers going bankrupt due to mounting levels of customer energy debt. Ofgem revealed that energy debt reached a record £2.6 billion during the summer, driven by higher wholesale energy prices and increased cost of living pressures.
To prevent suppliers from going out of business due to unrecoverable debt, Ofgem is exploring the possibility of a one-time adjustment to the price cap. This adjustment could temporarily increase consumer bills by up to £17 per year, or approximately £1.50 per month, on average. This measure aims to avoid a repeat of the 2021 energy crisis when around 30 suppliers collapsed, leading to additional charges for consumers to prevent disconnections.
While Ofgem acknowledges the impact of cost increases on households, it believes that addressing the issue of unrecoverable debt and supplier stability is crucial. The regulator emphasizes that it cannot subsidize energy or force suppliers to sell at a loss, and suppliers must offer quality services.
The consultation on the price cap adjustment will conclude on November 2, with Ofgem planning to publish recommendations based on the feedback received this winter.
Energy price caps determine the maximum rates that energy suppliers can charge for energy use in England, Scotland, and Wales. As of October 1, a new price cap came into effect, reducing the typical annual dual-fuel bill to below £2,000 for the first time since April 2022. The revised cap was set at £1,834 per year for a typical dual-fuel energy bill, down from the previous £2,074. This adjustment reflects lower energy consumption due to the cost of living crisis. However, some customers may still pay more than before the pandemic due to variations in energy consumption.
The decrease in wholesale energy prices has prompted some suppliers to reintroduce fixed tariffs, which were withdrawn during the peak of the 2021 energy crisis.
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