Yahoo Finance Ofgem to look at overhaul of energy price cap after wave of suppliers go bust
Ofgem has pledged to take "bold action" to deal with the impact of spiralling energy prices on millions of households.
The energy regulator said on Friday it would look at the way it caps the rates that consumers pay for gas and electricity after 14 suppliers went bust.
Ofgem plans to launch a consultation next month which will look at how the energy price cap is calculated.
Suppliers have criticised the cap for being too slow to reflect movements in the wholesale prices they must pay. Energy companies have been unable to pass on those costs, resulting in a series of collapses in recent weeks.
Kwasi Kwarteng, the business secretary, has said the government should not be expected to support badly run companies which failed to hedge their exposure to rising prices, an allegation strongly rejected by industry leaders.
The boss of Scottish Power has called for the cap to be abolished altogether and replaced with measures which protect only the most vulnerable households from rising bills.
Currently, 14 million households on standard variable energy tariffs have their bills capped at a rate equivalent to £1,277 for the average customer.
So far this year, wholesale gas prices have risen fivefold, while the cap rose only 12 per cent in October.
Energy consultancy Cornwall Insights expects a futher increase to £1,660 when the cap is next reviewed in April.
Ofgem said in a letter to suppliers on Friday: "The unprecedented rise in energy prices this year has changed the perception of risk and uncertainty in this market.
"In order to protect the interests of consumers, we must ensure that the regulatory frameworks, including the price cap, fully reflect the costs, risks and uncertainties facing the supply companies we regulate."
Ofgem's consultation runs until February, with changes potentially introduced in April.
The regulator also said it plans to make changes to the supplier of last resort (SOLR) process, under which customers of failed energy firms are moved to a new company.
Suppliers who have taken on new customers through SOLR face significant costs which are then passed on to all bill-payers through an industry-wide levy.
Ofgem wants to speed up the process so that suppliers can claim back those expenses more quickly.
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