Ofgem’s proposal to curb energy supplier debt by allowing increases to household bills has prompted renewed calls for an overhaul of the market’s structure.
Ofgem’s need to allow suppliers to charge customers what would equate to £17 extra over the year effectively spotlights issues with its pricing mechanism, according to comparison site Uswitch.
“Ultimately, this is another highlight of challenges with the whole price cap system,” Richard Neudegg, director of regulation at Uswitch, said.
“It is not fit for purpose, and market reforms are needed to introduce competition back into the market and help consumers access cheaper deals again.”
Ofgem effectively governs how much suppliers charge households for their energy, with its price cap having become the de facto standard of gas and electricity costs, rather than a maximum - as proposed when introduced in 2019.
Under proposals announced on Thursday, extra leeway would be given to suppliers through the price cap to charge more on bills in a bid to shield against debt.
According to Ofgem, energy firms’ collective debt rose to £2.6 billion in the summer, as consumers missed payments following a rapid rise in prices over the past two years.
This debt looks set to increase further, Ofgem warned on Thursday, leaving it to consider "whether or not to add a one-off adjustment to the price cap to reduce the risk of energy firms going bust”.
Charity Citizens Advice argued any change should be made with consumers in mind, explaining that it was currently helping “more people than ever before” with energy bills, even before winter weather hits.
“An increase in the price cap to pay for higher debts will make people's bills even more unaffordable,” the group said.
“Any change must be in the best interest of all consumers.”
Ofgem explained the decision, which is subject to a consultation that began on Thursday, would not be taken lightly, suggesting all options had to be explored.
“Ofgem cannot subsidise energy or force businesses to sell it at a loss and suppliers must be in a position to offer high-quality services to customers,” the regulator added.