Energy price cap could rise four times a year under regulator's shake-up plan

How to regulate energy bills is an increasingly serious issue for the industry, while how to pay is an even bigger one for millions of customers - as Consumer Editor Chris Choi reports

The energy price cap, which determines gas and electricity bills, could be reviewed every three months under new plans announced by the industry watchdog.

The price cap would also be "more reflective of current market prices and any price falls would be delivered more quickly to consumers,” Ofgem chief executive Jonathan Brearley said on Monday.

“It would also help energy suppliers better predict how much energy they need to purchase for their customers, reducing the risk of further supplier failures, which ultimately pushes up costs for consumers," he said.

“The last year has shown that we need to make changes to the price cap so that suppliers are better able to manage risks in these unprecedented market conditions.”

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 reviewed every six months and changed in October and April.The price cap 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.

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Easing the pressure on suppliers

Ofgem considers a range of information when deciding where the price cap should be set. The price that energy suppliers pay for the gas and electricity they buy is a major part of this.

Over the last year gas prices have risen so rapidly that suppliers were often forced to sell the gas for less than they bought it for due to the price cap.

By changing the price cap more often, Ofgem will make it more reflective of international gas prices, taking some of the pressure off suppliers.

The proposed changes to the cap will also allow suppliers to recover some other costs in a better timescale.

“Our top priority is to protect consumers by ensuring a fair and resilient energy market that works for everyone,” Mr Brearley said.

“Our retail reforms will ensure that consumers are paying a fair price for their energy while ensuring resilience across the sector.”

Ofgem said it hoped the changes could come into force in October, so households would see no impact from an update until January 1 under the plans.