UK energy suppliers to have their say over price cap changes

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UK energy suppliers will have the opportunity to propose changes to the national household price cap, which has been responsible for the collapse of more than a dozen suppliers in recent months.

Britain is one of the countries hardest hit by the global energy crisis and companies have called for a change in the rules that prevent them from passing all-time high rates to customers. As part of an overhaul, regulator Ofgem is also planning to tighten the rules to ensure suppliers have the financial strength to withstand greater volatility in the future.

The watchdog will launch a consultation on the measures next month, he said in a letter to suppliers on Friday. While prices have come down in recent weeks, a cold winter could see more businesses going out of business if they haven’t purchased enough power in advance at lower prices.

“The unprecedented rise in energy prices this year has changed the perception of risk and uncertainty in this market,” wrote Jonathan Brearley, Director of Ofgem, in the letter. “In order to protect the interests of consumers, we must ensure that regulatory frameworks, including price caps, fully reflect the costs, risks and uncertainties facing the supply companies we regulate.”

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New and existing suppliers also face stricter rules and requirements, especially with regard to the capital they must hold.

Price caps use a complex methodology to determine the maximum cost that suppliers can charge households for their energy. Ofgem intends to release a decision in February, which should leave enough time to implement any changes by the next price cap adjustment on April 1.

“It looks like Ofgem has finally achieved its goal,” said Tony Jordan, industrial consultant at Auxilone. “Unfortunately, none of these measures will help the current situation or save suppliers who have already failed.”

The watchdog also plans to speed up the supplier of last resort process, which turns customers over to other businesses. This will “set a firmer expectation on the capital investment” that suppliers have put in place and strengthen compliance measures.

(Updates with commentary in seventh paragraph.)

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