Millions of households will see an average £117 rise in energy bills from April after regulator Ofgem announced an increase in its price cap on default tariffs.
Ofgem blamed higher wholesale gas and electricity costs for the rise, affecting 11 million customers – with a typical dual fuel annual bill going up from £1,137 to £1,254.
The price cap policy on so-called “rip-off” default tariffs, introduced following years of political pressure, has only been in place since 1 January – with the original level of the cap promising to save customers an average £76 a year.
Ofgem claims that, even after the latest increase, customers would still be paying £75 to £100 a year more on average had the cap not been introduced.
The regulator’s chief executive, Dermot Nolan, said: “Under the caps, households on default tariffs are protected and will always pay a fair price for their energy, even though the levels will increase from 1 April.
“We can assure these customers that they remain protected from being overcharged for their energy and that these increases are only due to actual rises in energy costs, rather than excess charges from supplier profiteering.”
But the move prompted immediate criticism.
Stephen Murray, energy expert at price comparison site MoneySuperMarket, said: “The cap was put in place to protect consumers from overpaying on their energy, but right now it’s doing anything but that.
“It’s only taken five weeks for it all to unravel, and households up and down the country will be scratching their heads in confusion and wondering how the claims of ‘fair prices’ and ‘£76 per year saving’ have disappeared, and so quickly.”
Richard Neudegg, head of regulation at uSwitch, said: “We are in a ridiculous situation where standard plans are likely to be higher in April than before the cap was introduced.”
Energy minister Claire Perry said: “We were clear when we introduced the cap that prices can go up but also down.”
The price cap was designed to address the concern that customers who do not actively switch energy providers to take advantage of cheaper offers were being overcharged as they were left on default deals such as standard variable tariffs.
Customers who are on fixed rate tariffs are not affected by the price cap increase.
But Ofgem has announced an increase in a separate cap for four million customers who use pre-payment meters.
Their annual bills will go up by a typical £106 to £1,242.
Ofgem is re-setting the price cap twice a year with the next change to be announced in August and coming into effect on 1 October.
It said that capped prices would only go up when the underlying cost of energy increases.
“Equally when costs fall consumers’ bills are cut as suppliers are prevented from keeping prices higher for longer than necessary,” the regulator said.
Centrica, the owner of Britain’s biggest energy supplier British Gas, has previously warned that the price cap would result in a £70m hit to operating profits in “the initial period of the cap in the first quarter of 2019”.
It has previously challenged Ofgem over the way it calculated wholesale energy costs when the initial cap was put in place.
Shares in Centrica were up 1% in early trading after Ofgem announced the price cap hike.
Meanwhile, plans by SSE and Npower to merge their supply businesses were scrapped In December, with the price cap cited as a factor.
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(c) Sky News 2019: Energy price cap ‘unravels’ as £117 added to bills