Ofgem published its decision on 15 December 2023 not to adjust the price cap level based on variances in wholesale energy costs over Winter 22/231. The regulator said it considered that observed variances, either upwards or downwards, were more based on the risk management practices of individual suppliers than a systematic feature of the market as a whole1.
The same day, Ofgem opened a consultation on a one-off price cap adjustment of £16, equivalent to around £1.33 a month, to be paid between April 2024 and March 20251. The regulator said the money would ensure suppliers have the resources to support customers struggling with debt, through setting up payment plans, writing off unmanageable debt on a case-by-case basis and working out affordable repayment holidays1. Under the proposals, any extra costs would not be passed onto customers who use prepayment meters (PPMs)1. Ofgem said this reflects the fact that many PPM customers do not build up the same level of debt as credit customers because they top up as they go1.
Ofgem said energy debt has reached almost £3 billion, its highest ever level, which it attributed to a combination of sustained high wholesale energy prices and wider cost of living pressures1. In its notes, the regulator stated that technically the £3bn refers to "debt and arrears over 90 days due"1. It also set out its categorisation: arrears as the amount owed to energy suppliers by customers, including direct debit balances; debt as the amount owed that does not have a clear repayment plan; and bad debt as the amount owed which is unlikely to ever be repaid1.
On prices, Ofgem said that since January 2023 the price cap has fallen from £2,500, under the Government's Energy Price Guarantee, to £1,928 in January 20241. The price cap is set through the default tariff cap methodology, which the regulator administers.
"The proposals set out today are not something we take lightly. However, we feel that they are necessary to address this issue. This approach will ensure the costs are recovered fairly, without penalising a particular group of customers."
Ofgem also said new consumer standards came into effect officially on Thursday 14 December, meaning suppliers should offer debt repayment plans at the earliest opportunity and consider offering temporary debt repayment holidays where appropriate1. The standards are intended to improve ease of contact between customer and supplier, ensure contact centres are open at times that meet customer needs, and make it easier for consumers to see how good suppliers' customer service is by publishing information on their Citizens Advice star rating1.
Why it matters for households
The decision not to adjust the cap for Winter 22/23 wholesale variances means no retrospective change to cap levels on that basis1. The separate £16 proposal, if adopted, would add around £1.33 a month to bills between April 2024 and March 2025 for credit customers, while prepayment meter customers would not carry the extra cost1. The consultation describes the money as funding supplier support for customers in debt, including payment plans and write-offs1. For a household's energy independence, the practical effect sits in the standing relationship with a supplier: the level of debt in the system, and how it is recovered, shapes what suppliers can offer when a bill cannot be paid in full1. Ofgem itself described the price cap as "a blunt instrument in a changing energy sector" whose workings may need to change in future1.
What happens next
The consultation on the additional debt costs runs alongside a wholesale costs review, in which Ofgem is asking for stakeholder views on future changes to the wholesale methodology and technical changes to the Annex 2 wholesale allowance model1. Ofgem said it will seek views from stakeholders in 2024 on approaches for dealing with bad debt beyond the price cap1.