Ofgem has proposed a one-off price cap adjustment of £16 to protect consumers from the “growing risk” of ‘bad debt’.
The energy regulator defines bad debt as money owed by customers for their energy bills that is unlikely to be repaid.
New figures released by Ofgem last Friday (15 December) revealed that energy debt had reached its highest ever level at almost £3 billion. According to the regulator this is due to a combination of continued high wholesale energy prices and cost of living pressures, leaving households less able to pay their energy bills.
To help address this, Ofgem proposed a £16 one-off price cap adjustment to be paid between April 2024 and March 2025 – this would equate to roughly £1.33 per month.
The price cap refers to the annual price of energy for a typical dual fuel household paying by direct debit. Currently set at £1,834, the cap will rise to £1,928 on 1 January 2024.
Households will be paying less in January as in the same period last year (which even with the Energy Price Guarantee capping bills at £2,500 was over £500higher) energy prices remain extortionate with little sign of a return to pre-energy crisis levels.
Tim Jarvis, director general for markets at Ofgem stressed that adjustment was “not something [Ofgem] take lightly” but it is hoped to ensure that suppliers have the resources to support customer facing debt through means such as: setting up payment plans; writing off unmanageable debt in certain circumstances; and offering affordable repayment holidays.
“The record level of debt in the system means we must take action to make sure suppliers can recover their reasonable costs, so the market remains resilient, and suppliers are offering consumers support in managing their debts,” said Jarvis.
Jarvis also noted that, despite protecting consumers from gas market volatility in the past, the price cap “remains a blunt instrument in a changing energy sector, and the way it works may need to change in the future, so customers continue to be protected.”
Ofgem confirmed that any extra costs set out in last week’s proposals will not be passed onto prepayment meter (PPM) customers, as they do not build up the same level of debt as credit customers.
“Although today’s measures will go some way to helping with the issue of debt, Ofgem is also looking at alternative policy responses to the debt issues, beyond the price cap, and will seek views from stakeholders in 2024 on approaches for dealing with bad debt,” added the regulator.
The proposal follows a recent report by National Energy Action (NEA) which revealed that 6.5 million UK households will face fuel poverty upon the price cap change in January 2024.
