Exclusive: Energy price cap is only hurting customers, says Utilita boss
The price cap is a symbol of regulatory failings across the energy sector and has cost consumers more money than it has saved, argued Utilita Energy (Utilita) boss Bill Bullen.
The energy chief told City PM that the rigid mechanism had contributed to intense volatility in the energy market, which has seen households footing the bill for both the supplier of last resort process and Bulb Energy’s (Bulb) de-facto nationalisation.
He said: “The price cap isn’t really doing anything apart from costing customers more in the long run. Any perceived benefit is far outweighed by the regulatory failings that have saddled households with a multi-billion-pound tab to cover supplier collapses.”
Nearly 30 suppliers have collapsed over the past twelve months, hammered by the lethal combination of soaring wholesale costs, poor hedging strategies and the limitations of the price cap which prevented many firms passing the burden of record gas prices to consumers.
Over two million customers have been ferried from fallen firms to surviving suppliers via the last resort process, which is estimated to have cost £2.7bn.
This has added a further £94 to the price cap, which currently sits at a record £1,971 per year amid expectations it will double next year.
Meanwhile, Bulb’s fall from grace has cost £3bn, with Octopus Energy looking for a further £1bn to fund its hedging strategy.
At the time of its demise, Bulb revealed it cost the supplier £4 per therm to buy energy, but the cap limited charges to consumers to just 70p per therm.
The price cap was established in 2018 – and limits households by setting a maximum amount suppliers can charge per unit of energy.
It also caps the level of profits an energy supplier can make – currently at around 1.9 per cent.
Ofgem will announce the new level of the price cap on 26 August.
When approached for comment, Ofgem argued that its focus was on easing the pressure on households ahead of winter.
A spokesperson said: “Ofgem’s priority is to protect consumers and we know that people are currently under huge pressure as bills continue to rise. We will keep working closely with the Government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.”
Support needed to level prepayment meters
Bullen believed if there had to be a price cap, there should be one mechanism, rather than two.
Currently, there is a price cap for direct debits alongside a prepayment cap.
As it stands, the prepayment customers cough up £84 more than direct debit energy users.
Around four million customers use prepayment meters, including the vast majority of Utilita’s 850,000 customers.
Labour has called for the price cap to be equalised across the market, slamming the current situation as “outrageous.”
Shadow Chancellor Rachel Reeves said: “It’s outrageous that people on prepayment meters have to pay more for their energy. Why should those with the least have to pay more to heat their homes and put the lights on? This is unjustifiable and morally wrong.
The opposition party said it would eliminate the gap between the price caps over the winter and compensate energy firms for the difference.
It predicted this would cost about £113m between October and March, funded by the expanded windfall tax and the scrapping of the Tory rebate for energy users.
Bullen was not opposed to such a measure, provided his energy firm was reimbursed.
He concluded: “Since the inception of multiple price caps, we have been calling for one single price cap. However, there are additional costs to serve prepayment customers so, as detailed in Labour’s plans, there would need to be a true-up mechanism.”