ITV News Consumer Editor Chris Choi reports on how Ofgem reviewing the price cap for household bills every three months instead of six will impact consumers
The energy bill regulator has warned customers of "a very challenging winter ahead," as it announces it will update its energy price cap four times a year instead of every six months.
Ofgem made the announcement on Thursday morning, as Britain braced for an interest rates hike.
The Bank of England is widely expected to be set to announce the largest rise in 30 years, as millions grapple with the rising cost of living.
Ofgem says it will publish the energy price cap change at the end of August.
The price cap change means households' energy bills will go up or down every three months, instead of six.
Any further increases could have a "catastrophic" impact on households already struggling with soaring bills, experts have warned.
Today’s record price cap, at £1,971, is already hundreds of pounds more than the previous high, and is predicted to nearly double when the price cap changes in October.
The industry watchdog said the change would go “some way to provide the stability needed in the energy market”, adding, “It is not in anyone’s interests for more suppliers to fail and exit the market.”
It said Russia’s actions in Ukraine had led to the volatility in the global energy market experienced last winter lasting “much longer, with much higher prices for both gas and electricity than ever before”.
It warned that as a result of the market conditions, the price cap would have to increase later this month to reflect increased costs.
However it said that the changes would mean that any fall in wholesale prices would be passed on in full to customers and more quickly with the quarterly price cap.
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Ofgem chief executive Jonathan Brearley said: “I know this situation is deeply worrying for many people.
"As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before, and that means the cost of supplying electricity and gas to homes has increased considerably."
He added: “The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. "
“We will keep working closely with the government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.”
Changes to the price cap come as household energy bills are likely to remain at more than two-and-a-half times their pre-crisis levels until at least 2024, according to latest predictions.
Energy consultancy Cornwall Insight said bills will hit a staggering £3,359 per year from October for the average household when the price cap level is next due to change.
It will not fall below that level until at least the end of next year, the firm predicted.
Cornwall Insight added the price cap would hit £3,616 from January and rise further to £3,729 from April, beginning to fall after that, but only slowly, reaching £3,569 from July before hitting £3,470 for the last three months of 2023.
In May, the government announced an energy costs support package – worth £400 per household – in response to predictions that bills would rise to £2,800 for the average household in October.
The package also promised extra support for more vulnerable households.
However, critics have suggested the discounts do not go far enough.
The latest forecasts come after the Kremlin further strangled the flow of gas to Europe.
While the UK gets very little of its gas directly from Russia, the price paid in the UK is determined by what happens across the Continent.
If the predictions come to pass they are expected to put enormous pressure on already squeezed households.
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National Energy Action director of policy and advocacy Peter Smith criticised Ofgem for the move and said it "wasn't necessary."
“Average annual bills are already predicted to increase by £1,200 a year – a 177% increase since last October. Now, householders can expect further hikes just after Christmas, in the middle of heating season when energy costs are typically at their highest," he said.
“January is also usually a time of increased mental health problems and further hikes in bills will sadly lead to increased misery and huge anxiety for energy consumers across Great Britain, particularly for the poorest households.
"It’s disappointing that Ofgem has not listened to these concerns. They could have used their discretion to offset this avoidable outcome by starting the reforms in April when energy demand starts to fall.
“This change also strengthens the growing calls for deeper price protection for the poorest households, something Ofgem can and must help support.”
Gillian Cooper, head of energy policy at Citizens Advice, said: “Something that’s added to all our bills is the cost of supplier failures. Changing to a quarterly price cap should limit the risk of any more suppliers going bust, which is a good thing. But our bills are already incredibly high and still rising.
“The government was right to bring in financial support for people, but it may not be enough to keep many families afloat. It must be ready to act again before winter draws in.
“Ofgem must make sure suppliers are helping customers who are struggling to pay. It should
hold energy companies to account so people aren’t chased by debt collectors or pushed onto prepayment meters when they can’t keep up with bills.”
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What is the energy price cap?
The energy price cap – currently at a record £1,971 per year for the average household as the cost of living surges, is a limit on the maximum amount suppliers can charge for each unit of gas and electricity you use, rather than a price cap on your overall bill.
It’s important to note the price cap puts a limit on each unit of energy – in other words, the more energy you use, the more you will pay.
The price cap will also apply to the maximum daily standing charge for your home to be connected to the grid.
The cap does not apply to anyone on a fixed-term tariff.
Until now, it had been updated six months. The changes announce today, will mean the cap is reviewed quarterly instead.