Are customers ready for a new price cap every three months?

Price cap could also work as a ‘fixed mortgage’ under new proposals

Pathway to COP26 report

As high energy prices continue to put a severe strain on the domestic energy retail market, Ofgem is examining alternative options to make the price cap more resilient to price volatility.

One of the options that will be discussed as part of a new consultation could see the level of the price cap changing every three months.

Ofgem’s paper explained that this option will use the existing cost-based price cap methodology but will update the wholesale cost quarterly.

That could result in a “quicker pass-through of wholesale cost rises and falls, thereby reducing the lag between wholesale price movements and their recovery from eight to five months”.

Ofgem has also proposed one more option that will work in a similar way to a fixed mortgage, with price fixes for six months.

Under this scenario, that price will be set by Ofgem every month and an exit fee would come into force that would potentially decline over the six months.

The energy regulator said that option would protect both consumers and suppliers from price volatility.

Ofgem has also launched a consultation on the implementation of three ‘temporary’ measures to protect customers.

One of them would be to require suppliers to make all new tariffs available to existing customers.

Suppliers could also be allowed to charge exit fees on certain Standard Variable Tariffs.

The regulator has also proposed to require suppliers to pay a so-called Market Stabilisation Charge when acquiring new customers.

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