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October energy bills to rise to £2,800

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24/05/2022
The CEO of Ofgem estimates the energy price cap will rise to £2,800 in October but could go even higher.

This would hike average energy bills from the £1,971 energy price cap brought in just last month, to £2,800 this winter for an estimated 23 million on standard variable rates.

Jonathan Brearley, chief executive officer of Ofgem, said: “This is uncertain; we are only part way through the price cap window but we are expecting a price cap in October in the region of £2,800.

“Now our future scenarios when we look beyond that, we are really managing between two extreme versions of events. One where the price falls back down to where it was before, for example if we did see peace in Ukraine, but one where prices could go even further for example if we were to see a disruptive interruption of gas from Russia.”

He added that it’s possible the price cap will go even higher but could equally go lower because of the volatility in the market and wide range of uncertainty for winter.

He said: “I know that this news and news of the price cap in April is highly distressing. Ofgem, NGOs and the government will need to work closely together to manage the implications for the price changes that are to come. And I understand from our workings with this government that ministers are prepared to do more.”

However, Brearley admitted that around 6.5 million customers are now in fuel poverty following April’s energy price cap rise which he says will likely increase significantly. He said this figure could rise to double digits following October’s energy price cap rise to £2,800.

Indeed, leading think tank Resolution Foundation said the price hike could mean an increase from five million to 9.6 million families across England falling into fuel stress this winter.

Its analysis revealed that the number of families living in fuel stress – defined as spending at least a tenth of their total budgets on energy bills alone – would rise from 22% to 40.5%. However,  across the poorest 30% of the population, up to three-quarters of families could fall into fuel stress.

Meanwhile one million people are on pricier pre-payment meters and Brearley said he is already seeing and will see an increase in self-disconnection, adding that’s something which troubles him hugely.

When it comes to ‘confusing’ standing charges, he said their growth is difficult at this time, and as such it will look again at the way the standing charge is made up, in particular the way the Supplier of Last Resort levy (SoLR) is redistributed.

Supplier failures

Speaking at the business, energy and industrial strategy committee inquiry into energy pricing and the future of the energy market, Brearley was also asked about supplier failures as 30 firms have gone bust since January 2021.

He said: “There are significant lessons to be learned from this crisis and change is absolutely needed to the way we regulate the retail market.

“The price changes we have seen in the gas market are genuinely a once in a generation event, not seen since the oil crisis in the 1970s. In any conceivable circumstance there would have been supplier failure.

“However, it is clear to me and to the current Ofgem board, looking over all our institution’s history, that had financial controls been in place sooner, we’d have likely seen fewer energy companies exit the market and for that, on behalf of Ofgem and its board, I would like to apologise.”

Brearley added: “No regime can protect against failure. It is a risk that other companies will fail, given the range of scenarios.”

When asked about estimates of customers not being able to afford paying their bills and what projections Ofgem has made, it said it monitors bad debt levels with suppliers and this is currently estimated at £1.3bn, which is significantly higher than last year’s figures and “ will undoubtedly go up”

Disproportionate direct debit hikes

Asked if Ofgem is ‘on the side of consumers’ particularly when it comes to customers having had their direct debits hiked “well in excess of what was required”, Ofgem said if it sees that direct debits have been unfairly taken, then it will take enforcement action against those companies.

“We will be expecting those companies to return that money to customers. Equally, we will be considering whether we need to go further than that and apply fines,” Brearley said.

Extra £18.3bn on energy costs

Laura Suter, head of personal finance at AJ Bell, said: “The price cap increase in October is now expected to lump another £800 onto the average annual household bills – another leap in costs for many households. Around 22 million people are now on the price cap tariff – double the number this time last year. The additional £830 on the average bill means the nation will be paying an extra £18.3bn for their energy costs from October.

“The hike is even more stark when we consider that in September last year the average bill was £1,138 – an amount that seemed a lot at the time but has been eclipsed now. It means the average household will have to find an extra £1,662 just to pay for the same energy to heat their homes or cook their food over the past year.”

Suter added that for most households, they have no other option as fixed rate deals are far higher than October’s price cap rate, and given that Ofgem plans to move to quarterly energy price cap updates, many will need to brace for another potential increase in January 2023.

On price cap changes, Brearley said: “The changes you make to the frequency of the price cap don’t change the amount people pay for their energy overall. So that needs to be paid for over the course of the year anyway.”

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