The UK energy watchdog is facing increased pressure as it will be forced to defend a “significant” increase in fuel bills for 11 million households, who had been guaranteed a cap to their bills.
On Thursday, Ofgem will announce an increase to the energy price cap introduced at the beginning of the year to help the 11 million consumers on variable “default” tariffs save £76 a year.
Politicians from both sides of the House of Commons pushed for the limit to come into force as those on the tariffs were left vulnerable to sudden and substantial changes to energy bills.
The price cap is expected to increase £100 to £1,137 for typical customers purchasing both gas and electricity, which is said to be caused by higher wholesale prices.
Ofgem has acknowledged the hike will be “significant” but argues that consumers will still be £100 better off.
“Suppliers historically have charged an amount over and above what we think for an efficient operator is a fair price to charge,” said Rob Salter-Church, director for retail systems transformation at Ofgem.
However, critics of the cap have said the move will be embarrassing for the regulator and it could be subject to further changes in six months’ time, when it will next be reviewed.
“Just six weeks after the cap was introduced, Ofgem is expected to confirm it is wiping out any initial savings with an estimated £80-£100 hike to the cap level. We’ll then see a six-monthly cycle begin, which could mean more price volatility for bill payers on default tariffs,” said Richard Neudegg, head of regulation at uSwitch, the price comparison company.