British Gas and Eon could be investigated by Ofgem for breaching price cap rules

Two of the UK’s largest energy supply companies could be investigated by Ofgem and possibly face fines of up to 10% of their revenue after being accused of breaching price cap rules by overcharging customers by hundreds of pounds.

Revolt against the price cap?

British Gas and Eon first landed in hot water earlier this month after being accused of flouting the price cap rules by charging their customers more than the price cap for electricity and gas bills.

In some cases, they have only allowed households to apply for tariffs that are sometimes as much as £700 more expensive than the current price cap level.

The move could be a sign of growing revolt against the energy price cap which has been blamed for the swathe of energy suppliers being forced to exit the market.

The cap has been accused of stifling a company’s ability to charge their customers enough to cover the costs of surging wholesale gas prices. Despite repeated calls by those in the industry to abolish the price cap, the government has refused, citing that it is needed to protect consumers.

Also read: Energy Suppliers blame Ofgem for the crisis in the energy market

A growing issue?

With wholesale gas prices showing no signs of falling (they’re more likely to rise further due to incoming cold weather) we could see more energy suppliers challenge the regulator and refuse to offer new customers the standard variable tariffs that are covered by the price cap.

Several suppliers including EDF have already said that they will only be offering the more expensive fixed-rate deals that cost more than the cap.

At learning of these actions, it was reported by the Telegraph newspaper that Business Secretary Kwasi Kwarteng was furious with the energy companies and the claims that they have broken the rules.

“The government expects all suppliers to abide by the regulations and licence conditions, which are specifically in place to protect consumers. The Business and Energy Secretary has asked Ofgem to urgently investigate this issue, and we expect the regulator to take immediate action if breaches have taken place,” said a spokesman for the government.

Also read: Ofgem issues a warning to energy suppliers over the use of threatening language towards customers

Ofgem launches consultations on price cap

Ofgem has set out its plans that would allow it to make changes to the energy price cap. The regulator said that it will be launching five consultations on proposals to ensure that the cap will reflect the current crisis engulfing the energy retail sector.

The five consultations will cover:

• The impact of wholesale price volatility on the default tariff cap
• How Ofgem can update the default cap methodology and how it sets maximum charges
• The ongoing impacts of the Covid-19 pandemic and its impacts on debt-related costs
• The fourth consultation reflects End User Categories in the default tariff cap
• Ofgem is seeking consultation on the Energy Company Obligation scheme allowance methodology in the default tariff cap.

Any changes to the price cap that do emerge from the consultation will come far too late for the 19 energy suppliers that have exited the market since the start of the crisis this autumn.

Also read: High Wholesale energy prices forecast to continue throughout the winter

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Further Reading

Neon Reef and Social Energy Supply exit the market

A third of remaining energy suppliers are at risk as wholesale energy prices hit second-highest level in three years

Five energy suppliers warned they could lose their licences for failing to pay renewable obligations

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Through our energy market consultancy services, and the software we’ve developed, we’re supporting new UK electricity and gas suppliers get set up and start supplying.

For more information on how to start and manage an energy company, get in touch with Dyball Associates today.