Why Have Energy Price Caps?

Energy Price Caps is a temporary restraint placed on energy suppliers to offset the cost of their electricity and gas supply over a set period of time. The caps are also known as “caps” and “tarps” by industry professionals. They are placed on large-scale generators and other wholesale electricity and gas distribution to act as an insurance policy for the consumer. They are a vital safeguard against electricity and gas price hikes, but do they work?

 

switch energy suppliers

 

The energy price caps restrict how much energy suppliers can charge you each month, never how much they actually charge consumers each year. For the majority of UK households, it is vital that we have the option to change energy suppliers every six months to allow for inflation. The cap was introduced to prevent households from overpaying by their energy provider, ensuring that a fair market rate is maintained. However, it is not an iron-clad guarantee that prices will remain level. In fact, there is evidence that prices have actually dropped in some areas.

It is important to remember that the energy price caps are there to be broken if your provider attempts to increase your tariff. It is very easy to breach the cap levels. You can simply ask your supplier to increase your tariff by asking for a rate freeze for a period of three years. If you then go back to them and ask for a tariff increase, they can legally increase your bill. The only way that your energy supplier can lawfully increase your tariff is if there has been a break in the three-year tariff cycle.

Because the energy regulator, Ofgem, has placed a cap on the number of increases that can be made to your tariff by your supplier, it is essential that you check your tariff every six months to see if your supplier has broken the current energy price caps. You should also check to make sure that the current caps have not been broken by any increases to your supplier’s rates, which have subsequently been approved by Ofgem. If you find any instances where your provider has indeed broken the three-year tariff cap levels, then you should contact Ofgem and write to them about your findings. You can then take action with your local Gas & Electricity Authority or your local Trading Standards authority.

 

household energy bills

 

If you think your provider has gone above the three-yearly cap levels, then you should request a written declaration from them. You should do this not only to find out if your provider is in breach of the price caps but also to find out how much additional regulation and monitoring will be put into place. You should also ask if there is a difference in the tariffs that are offered to those who use more electricity and gas. As you will probably notice, there is a considerable difference in the tariffs that are offered by your gas and electricity suppliers. If you were to compare your current gas and electricity usage with those of your comparison customer with the same characteristics as yourself, you will most likely find that you have received a substantially higher price per kilowatt-hour. You should therefore consider whether this is a good idea or not.

The energy regulator Ofgem has introduced the Energy Performance Certificate (EPC) and why should you bother with these? Because Ofgem has identified which suppliers like us are using too much of their cap capacity. These are known as ‘price flies’ and have to be dealt with in order to ensure fair competition in the marketplace. You can learn more about this online.

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