Ofgem has decided to remove the deadband from the backwardation allowance in the default tariff cap and to allow the costs and benefits currently subject to it to be recovered over a rolling 12-month period1. The regulator consulted on the change in August 2025 and published its decision on 21 November 2025, with implementation from price cap period 16b, covering July to September 20261.
The default tariff cap was introduced on 1 January 2019 under the Domestic Gas and Electricity (Tariff Cap) Act 2018, which protects households on standard variable and default tariffs1. It includes an allowance for backwardation, the difference between buying energy for a full year and buying it only for the upcoming cap period, which is a cost to suppliers when the quarter ahead is more expensive and a benefit, known as contango, when it is cheaper1. These costs and benefits are subject to a threshold, the deadband, of £9, below which they are not passed through to customers1. Ofgem set the deadband at a fixed level of £9, made up of £4 for electricity and £5 for gas in pounds per customer per quarter, symmetrically around zero, and says £9 was found to be the standard deviation of historical data centred around zero1. The deadband was first introduced in October 20221.
Under the decision, costs and benefits currently subject to the deadband will be recovered through the cap on a rolling 12-month period, while timelier six-month cost recovery will be maintained for costs above the deadband1. Ofgem said it expects the deadband removal to be bill neutral in the long term1. It put the impact at a loss to suppliers of £0.28 per dual fuel customer, which it said is considerably lower than the forecast cumulative impact on suppliers in either April 2026, at minus £8, or October 2026, at plus £51. The document also cites a £6.2 loss per electricity customer and a £5.9 benefit per gas customer1.
Ofgem said implementation in January 2026 would have led to a short-term increase of £9 per dual fuel customer in the January to March 2026 price cap1. It added that applying £9 cost recovery over six months, on an annualised basis, the impact on any given quarterly cap rate may be up to £50 depending on the demand share for that cap period1. The consultation, which opened on 27 August 2025 and closed to responses on 25 September 2025, received nine responses from suppliers, one from a consumer group and one from a consumer1.
"We have decided to proceed with our consultation proposal of removing the deadband from the backwardation allowance and allowing costs currently subject to the deadband to be recovered over a rolling 12-month period"
Why it matters for households
The deadband sits inside the wholesale element of the energy price cap, which sets the maximum a supplier can charge domestic customers on standard variable and default tariffs. Under the old arrangement, the first £9 of backwardation cost or benefit in each quarter was absorbed rather than passed through, which limited swings in quarterly cap levels but left suppliers exposed to periods of under- or over-recovery1. Removing it and spreading recovery over 12 months changes how those wholesale differences reach bills: the quarterly smoothing effect of the deadband goes, while the recovery of amounts up to £9 is stretched across a year1. Ofgem describes the change as a risk-reduction measure intended to support a more stable and investable supply market, which it says ultimately benefits existing and future default tariff customers1. For a household, the practical effect is on the timing and size of movements in the cap rather than on any single standing charge or unit rate, and Ofgem's own assessment is that the change is bill neutral over the long term1.
What happens next
The change takes effect from price cap period 16b, covering July to September 20261. Ofgem said the precise cumulative recovery position at the point of July implementation is subject to change due to movements in the forward curve, and that it retains the ability to make changes to the cap methodology in the event of material and systematic issues1. It said that if a concerning level of under- or over-recovery emerges it may reconsider the removal date, but would not do so lightly given the regulatory uncertainty and additional process it would bring1.