Energy regulator Ofgem has told a number of energy suppliers to take immediate and urgent action, after a review found a range of weaknesses or failings in the way they charge customers direct debits.
Out of a total of 17 large suppliers in the market, the majority were found to only have minor issues, but five were found to have ‘moderate or severe’ weaknesses with Ofgem demanding immediate action.
This is an initial snapshot of findings and suppliers affected will now have to submit action plans within two weeks to set out how they will take the required actions, which Ofgem will scrutinise for effectiveness and comprehensiveness.
Although we have not found evidence of unjustifiably high direct debits, as an additional reassurance for consumers, the regulator will require all suppliers that increased their customers’ direct debits by more than 100% (impacting over 500,000 customers) to review them.
Where appropriate, Ofgem also expects suppliers to adjust any miscalculations, including making repayments if needed, and consider whether a goodwill payment is warranted.
The review of domestic energy suppliers found that:
Over 7 million energy consumers on a Standard Variable Tariff (SVT) saw an increase in their direct debit between February and April 2022
On average, direct debit levels for customers on an SVT increased by 62% in this period. Most of this reflects the increased cost of gas*
8% of SVT customers seeing an increase (around 500,000 households) experienced an increase of more than 100% and Ofgem is concerned by this and wants to ensure there is good reason for it (e.g., coming off an SVT, increase in energy use etc)
Evidence that some suppliers’ processes are not as robust as they could be, and that this could lead to inconsistent, incorrect or poor treatment for customers
A lack of formally documented policies and processes within some suppliers, which risks inconsistent and poor consumer outcomes.
Ofgem recognises that increases experienced by consumers will differ depending on a range of factors, and that some of these, such as recent tariff changes, high debit balances or recent meter reads, can drive large adjustments to customer direct debits.
But it is for suppliers to ensure that direct debits are set correctly based on all relevant information available, and that they clearly communicate any changes in a way that helps consumers understand their payments.
Jonathan Brearley, Ofgem CEO, said:“We know how hard it is for energy customers at the moment so it’s crucial that the amount they pay each month in direct debits is right so they can manage their money.
“Suppliers must do all they can, especially during the current gas crisis, to support customers and to recognise the significant worry and concern increased direct debits can cause.
“We know there is some excellent service out there, but we want to make sure that it’s consistent and standard across the board. It’s clear from today’s findings on direct debits that there are areas of the market where customers are simply not getting the service they need and rightly expect in these very difficult times.
“Today’s findings show that with the urgent changes we are now expecting, the current system will be much fairer for consumers. Bringing down the price of gas is not in Ofgem’s control; however, we will do all we can to have a fair system and ensure suppliers look after their customers.”
The Ofgem assessment divided supplier findings into three groups:
No significant issues (four suppliers)
Minor weaknesses (seven suppliers)
Moderate to severe weaknesses (five suppliers)
Suppliers in the first group, with no significant issues found, are British Gas, EDF, ScottishPower and SO Energy. Our review found that these suppliers generally had robust processes in place, although we did make some recommendations for improvement, and Ofgem will work with these suppliers for continuous improvement. We are asking these suppliers to review customer direct debits to ensure they are correct, as an additional assurance for consumers.
The second group, with minor weaknesses, consisted of Bulb, E.ON, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse. For this group of suppliers, we identified some weaknesses or gaps in their processes that could lead to poor consumer outcomes.
Examples include lack of documented policies or guidance for staff, potentially not taking account of all relevant factors when setting customer direct debits, or risks that some customers’ direct debits are not assessed when appropriate. We have started compliance engagement with these suppliers to secure improvements.
Suppliers in the third group had moderate to severe weaknesses identified. This group includes Ecotricity, Good Energy, Green Energy UK and Utilita Energy, and covered a spectrum of weaknesses, ranging from inadequately documented or embedded processes, weak governance and controls, to an overall lack of a structured approach to setting customer direct debits.
Ofgem is concerned that in some cases this could lead to customer direct debits being set incorrectly, or not being evaluated for a long time, which can cause the build-up of either unnecessarily large credit balances or debt, depending on whether the customer is under- or overpaying.
Ofgem is starting compliance engagement with these suppliers to drive rapid and robust improvements to processes and reassess customer direct debits where necessary. If these suppliers don’t take action fast enough, Ofgem will consider enforcement action.
Also in this group, with severe weaknesses were TruEnergy and UK Energy Incubator Hub (UKEIH). In both cases we found suppliers did not have a consistent and structured approach to setting customer direct debits, and found severe concerns over the maturity of their processes, putting consumers at a serious risk of inconsistent or poor outcomes, with need for rapid and significant improvement.
To this end, we are considering whether enforcement action is warranted. Since the findings were made, UKEIH have ceased to trade and so we will not pursue any further action against them.
If Ofgem does not see swift and sufficient improvement, as well as redress for consumers where necessary, the regulator will not hesitate to initiate enforcement action against more suppliers, which can include fines, enforcement orders and banning the acquisition of new customers.
Ofgem has now instructed suppliers to:
· review the accounts of all customers whose direct debit was increased by 100% or more between 1 February and 30 April 2022, to assess whether the uplift was appropriate
· adjust any miscalculations and consider whether a goodwill payment is warranted in the circumstances
· address any process issues which may have incorrectly led to significant increases or other poor consumer outcomes, such as systemic over- or underpayment, and
· submit action plans within two weeks to set out how they will take the required actions, which Ofgem will scrutinise for effectiveness and comprehensiveness.
Journalistic website Money Saving Expert (MSE) sent Ofgem a dossier of information earlier this year on the same issue, after it was raised by consumers.
This is all part of the wider work that Ofgem is doing to make the energy market fairer, including a robust recent review into lessons learnt from Storm Arwen, a more frequent and fairer price cap, and most recently, action to improve the financial resilience of companies.
Rocio Concha, Which? Director of Policy and Advocacy, said:“The cost of living remains consumers’ number one priority, yet Which? has heard concerning stories of consumers having their energy direct debits miscalculated or increased by huge amounts, while our research shows many customers are struggling to understand their bills and pricing.
“It’s encouraging to see the regulator taking action over poor performance and Ofgem should not hesitate to impose penalties on any suppliers that fail to make the necessary improvements.
“At a time when consumers are paying more than ever before for energy, the regulator must also work with government and suppliers to explore ways of using data proactively to offer targeted support to those in most need of help before they have to turn to debt charities.
“Which? will seek to work with businesses in energy and other key sectors to find more ways to support consumers through the tough times ahead.”
Households are being encouraged to take a meter reading today (31st March) before an energy price hike comes into effecton 1st April.
It is advised to supply a meter reading to ensure that you get the current, cheaper rates for all the energy you have used prior to this date. You may be charged for energy used prior to the increase at the new higher unit prices if you do not supply a reading.
Ofgem is increasing its price capfrom the 1st of April. For those on a default tariff who pay by direct debit, the price cap is going up by almost £700.
However, if you take a meter reading on 31st of March and provide this to your energy supplier, you should be charged correctly (at the lower rate) for energy already used.
How Do I Submit a Meter Reading?
There are various ways you can submit a reading:
· Online or via the energy supplier’s app
· Through online chat with the supplier
· Sending a text
· Contacting the supplier via telephone (this is sometimes an automated line).
More information on how to provide a meter reading to your supplier can be found on their website, or on statements or bills you have received from them.
Smart Meters
Smart meters send automatic readings to your energy supplier. Depending on how a smart meter is set up, it may not automatically send a reading on the 31st of March. This is because in many cases the system will be set up to send a reading on a set date once a month.
You may be able to change the settings – some meters can take readings every half hour – or, failing that, log into your account and submit your reading that way.
For example, British Gas have insisted that its smart meters take readings at set times determined by the customer, but there is nothing to stop them logging in and submitting an additional one on the 31st of March.
If, for whatever reason, you have a problem trying to submit your readings, you can take photos on the day that clearly show the reading, and the meter serial numbers.
energyadvice.scot
As the cost of living crisis bites, it’s important to ensure you’re not paying more than you should be for your energy. One of the easiest ways to do this is through taking and submitting meter readings.
While smart meters are taking the chore out of remembering to read your meter, not every household has them installed. It’s therefore important to know how to take your meter readings and to let your supplier know what they are.
Energy bills are confusing if you don’t understand what the numbers mean. Luckily, Energy Saving Trust have this great blog that breaks down your energy bills.
If you don’t give your energy supplier meter readings, they guess how much you’ve used based on the information about what that property has used in the past. This is known as an estimated reading. Your bill may show ‘estimated’ or ‘E’ on the bill you receive. .
Estimated readings can be over or under what you’re actually using and could lead to problems with your energy bills later down the line. If your energy supplier has underestimated how much energy you’re using, you could end up owing money that you haven’t budgeted for. On the other hand, if your energy supplier has overestimated how much energy you’re using, you could end up paying higher bills than you need to.
To avoid this, take accurate meter readings and provide them to your energy supplier, who should then send you an accurate bill. Look at the reading number on your meter and write it down. Many energy companies allow you to submit these readings online or provide an automated phone service to let you do this.
If you’re struggling to keep warm at home and keep up with your energy costs, we’re here to help you. As well as tips on how to save energy and advice on making your home warmer, we can check if you’re eligible for special discounts from energy suppliers and other funding. We can also help you get a benefits and tax credit check so you’re not missing out on additional income.
Give us a call on 0808 808 2282 or use our contact form to get in touch via email.
“We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet”
Record increase in global gas prices sees energy price cap rise of 54%
Ofgem knows this rise will be extremely worrying for many people
Customers struggling to pay their energy bill should contact their supplier to access the help available
The energy price cap will increase from 1 April for approximately 22 million customers. Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year (difference due to rounding). Prepayment customers will see an increase of £708 from £1,309 to £2,017.
The increase is driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year.
It will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier exited the market.
The price cap is updated twice a year and tracks wholesale energy and other costs.
It stops energy companies from making excessive profits, ensuring customers pay no more than a fair price for their energy.
The price cap allows energy companies to pass on all reasonable costs to customers, including increases in the cost of buying gas.
Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place.
Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect.
This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it.
Over the last year, 29 energy companies have exited the market or been put in special administration in the wake of soaring global gas prices, affecting around 4.3 million domestic customers.
Jonathan Brearley, chief executive of Ofgem, said:“We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”
Ofgem will tomorrow announce further measures to help the energy market weather future volatility by increasing financial resilience and have the flexibility to respond so that risks are not inappropriately passed on to consumers.
The further measures include enabling Ofgem to update the price cap more frequently than once every 6 months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.
Help available for customers:
If customers are struggling to pay for energy bills, they should contact their energy supplier as soon as possible. Depending on their circumstances, customers may be eligible for extra help with their energy bills or services, such as debt repayment plans, payment breaks, emergency credit for prepayment metered customers, priority support and schemes like the Winter Fuel Payment or Warm Home Discount rebate.
Breathing Space Scheme: This is a scheme to give households time to receive debt advice and find a solution to sort out their debt problems. Breathing space will last for 60 days as long as applicants remain eligible during which time all creditors who have been included will be informed and must stop any collection or enforcement activity. Once the breathing space ends, creditors will be able to collect the debt in the usual way. Call the National Debtline on Freephone 0808 808 4000 or visit www.nationaldebtline.org
The Citizens Advice consumer service can provide advice on how customers can resolve problems with their energy provider. You can contact Citizens Advice via webchat, or by calling 0808 223 1133. For complex or urgent cases, or if a person is in a vulnerable situation, they may then be referred onto the Extra Help Unit.
2. Ofgem will announce further measures tomorrow including:
Introducing an uplift in the wholesale cost allowance in the price cap: after reviewing the evidence, Ofgem has decided that the existing price cap methodology did not appropriately account for the additional wholesale energy costs energy companies have incurred during the current price cap period following the unprecedented scale of wholesale energy prices and volatility. This adjustment represents less than 10% of the overall price cap increase.
Changing licence conditions to give Ofgem the more flexibility to change the price cap level if needed in between the regular six-monthly cap updates: Ofgem has set ourselves five tests which mean we will only expect to use the power in exceptional circumstances.
Further reforms to the price cap from October: In December we set out three options to make the price cap more robust to high and volatile wholesale energy costs while preserving as far as possible the benefits of the price cap for consumers. The consultation published tomorrow will include all three options, with quarterly updates as our preferred option
Breakdown of costs in the energy price cap
Dual fuel customer paying by direct debit, typical energy use (GB £)
*Network costs: The main driver of this increase is the recovery of Supplier of Last Resort (SoLR) levy costs (£68). A supplier acting as a SoLR can make a claim for any reasonable additional, otherwise unrecoverable, costs they incur. These levy claims are paid to energy companies by the distribution network companies and recovered from consumers via their charges.
5. The charts below show the wholesale prices that are used to determine the wholesale cost allowance within the price cap from spring 2018 ahead of the introduction of the price cap in January 2019.
Wholesale costs make up the majority of a customer’s bill. An efficient supplier will purchase energy for their customers on the wholesale market in advance of when they need to supply that energy.
This purchasing strategy is reflected in how the wholesale allowance is calculated within the price cap. We observe the forward-looking energy contracts that energy companies typically purchase over time and combine these to determine the wholesale cost allowance within the price cap.
We do this twice a year when we update the price cap in August for the winter period (October – March) and in February for the summer period (April – September) based on the price of these forward-looking energy contracts over the previous six months.
The fixed horizontal line shows the average wholesale cost allowance for each 6 month price cap period based on the price of the relevant forward looking energy contracts (the jagged line).
The recent spike in the prices of relevant forward looking energy contracts over the last 6 months can be clearly seen. The scale and pace of wholesale price increases has resulted in a big increase in the wholesale cost allowance for the price cap level for summer 2022.
Wholesale gas price costs in the energy price cap
Pence per therm
Wholesale electricity price costs in the energy price cap
Pounds per megawatt hour
Data sets behind these graphs are proprietary and can be sourced from ICIS.
Chancellor’s statement – Energy Price Cap
Statement, as delivered by Chancellor Rishi Sunak, on 3 February 2022:
Mr Speaker,
The UK’s economic recovery has been quicker and stronger than forecast.
In the depths of the pandemic, our economy was expected to return to its pre-crisis level at the end of 2022.
Instead, it got there in November 2021 – a full year earlier.
Unemployment was expected to peak at nearly 12%.
Instead, it peaked at 5.2% and has now fallen to just over 4% – saving more than 2 million jobs.
And with the fastest growing economy in the G7 this year…
Over 400,000 more people on payrolls than before the pandemic…
And business investment rising…it’s no wonder Mr Speaker, that borrowing is set to fall from £320bn last year …
… the highest ever peacetime level …
… to £46bn by the end of this Parliament.
As we emerge from the depths of the worst recession in 300 years, we should be proud of our economic record.
The economy is stronger because of the plan we put in place; because of the actions we took to protect families and businesses.
And that plan is working.
But for all the progress we are making – the job is not yet done.
Right now, I know the number one issue on people’s minds is the rising cost of living.
It is the independent Bank of England’s role to deliver low and stable inflation – and the Governor will set out their latest judgements at midday today.
And just as the government stood behind the British people through the pandemic…
… so we will help people deal with one of the biggest costs they now face – energy.
The energy regulator, OFGEM, announced this morning that the energy price cap will rise in April to £1,971 – an increase of £693 for the average household. Without government action, this would be incredibly tough for millions of hardworking families. So the government is going to step in to directly help people manage those extra costs.
Mr Speaker,
Before I set out the steps we are taking, let me explain what’s happening to energy prices, and why.
People’s energy bills are rising because it is more expensive for the companies who supply our energy to buy oil, coal, and gas.
Of the £693 increase in the April price cap, around 80% comes from wholesale energy prices.
Over the last year, the price of gas alone has quadrupled.
And because over 85% of homes in Britain are heated with a gas boiler, and around 40% of our electricity comes from gas, this is hitting households hard.
The reasons gas prices are soaring are global.
Across Europe and Asia, a long, cold winter last year depleted gas stores.
Disruption to other energy sources like nuclear and wind left us relying more than usual on gas during the summer months.
Surging demand in the world’s manufacturing centres in Asia…
… at the same time as countries like China are moving away from coal…
… is further increasing demand for gas.
And concerns about a possible Russian incursion into Ukraine are putting further pressure on wholesale gas markets.
And so prices are rising.
Mr Speaker,
The price cap has meant that the impact of soaring gas prices has so far fallen mainly on energy companies.
So much so, that some suppliers who couldn’t afford to meet those extra costs have gone out of business as a result.
It is not sustainable to keep holding the price of energy artificially low.
For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest. But what we can do is take the sting out of a significant price shock for millions of families … by making sure the increase in prices is smaller initially and spread over a longer period.
Mr Speaker,
Without government intervention, the increase in the price cap would leave the average household having to find an extra £693.
The actions I’m announcing today will provide, to the vast majority of households, just over half that amount – £350.
In total, the government is going to help around 28 million households this year.
Taken together, this is a plan to help with the cost of living worth around £9bn.
We’re delivering that support in three different ways.
First, we will spread the worst of the extra costs of this year’s energy price shock over time.
This year, all domestic electricity customers will receive an upfront discount on their bills worth £200.
Energy suppliers will apply the discount on people’s bills from October.
With the government meeting the cost in full.
That discount will be automatically repaid from people’s bills in equal £40 instalments over the next five years.
This is the right way to support people while staying on track with our plans to repair the public finances.
And because we are taking a fiscally responsible approach, we can also provide more help, faster, to those who need it most – the second part of our plan.
We’re going to give people a £150 Council Tax rebate to help with the cost of energy, in April – and this discount won’t need to be repaid.
And I do want to be clear with the House that we are deliberately not just giving support to people on benefits.
Lots of people on middle incomes are struggling right now, too – so I’ve decided to provide the council tax rebate to households in Bands A to D.
This means around 80% of all homes in England will benefit.
And the third part of our plan will provide local authorities with a discretionary fund of nearly £150m…
… to help those lower income households who happen to live in higher Council Tax properties…
… and households in bands A-D who are exempt from Council Tax.
We’re also confirming today that we’ll go ahead with existing plans to expand eligibility for the Warm Home Discount by almost a third…
… so that 3m vulnerable households will now benefit from that scheme.
And that’s not all we’re doing to help vulnerable households.
We’re providing £3bn over this Parliament to help more than half a million lower income homes become more energy efficient, saving them on average £290 per year.
Increasing the National Living Wage to £9.50 an hour in April, a pay rise of over £1,000 for 2 million low paid workers.
And providing an effective tax cut for those on Universal Credit, allowing almost 2 million households to keep an average of £1,000 per year.
The payment through energy suppliers will apply across England, Wales and Scotland.
Energy policy is devolved in Northern Ireland, with a different regulator, and the government does not have the legal powers to intervene.
So we will make sure the Executive is funded to do something similar, with around £150m for Northern Ireland through the Barnett formula next year.
And because the Council Tax system is England only, total Barnett consequentials of around £565m will be provided to the devolved administrations in the usual way.
Mr Speaker,
I know that some in this House have argued for a VAT cut on energy.
However, that policy would disproportionately benefit wealthier households.
There would also be no guarantee that suppliers would pass on the discounts to all customers.
And we should be honest with ourselves: this would become a permanent Government subsidy on everyone’s bills.
A permanent subsidy worth £2.5 billion every year – at a time when we are trying to rebuild the public finances.
Instead, our plan allows us to provide more generous support, faster, to those who need it most, providing 28m households with at least £200, and the vast majority receiving £350.
It is fair, it is targeted, it is proportionate – it is the right way to help people with the spike in energy costs.
Mr Speaker,
Today’s announcements are just one part of the government’s plan to tackle this country’s most pressing economic challenges.
A plan for growth – with record investments in infrastructure, innovation and skills.
A plan to restore the public finances – with debt falling by the end of this Parliament.
A plan to cut waiting lists and back the NHS with £29bn over three years and a permanent new source of funding.
And, with the measures I’ve announced today – a plan to help with the rising cost of energy with £350 more in the pockets of tens of millions of hard working families.
That’s our plan to build a stronger economy – not just today but for the long term.
And I commend it to this House.
Commenting on the energy cap rise, interest rate rise and the Chancellor’s measures to address the cost of living crisis, TUC General Secretary Frances O’Grady said: “The Chancellor’s announcement is hopelessly inadequate. For most families it’s just £7 a week and more than half must be paid back.
“It’s too little, it’s poorly targeted, and it’s stop gap measures instead of fixing the big problems.
“Britain needs a pay rise. The best way to help families is to get wages growing again. But this government has no plan to end pay misery.
“Ministers should be getting urgent help to families that need it most through raising universal credit. And we need a windfall tax on the excessive profits from North Sea gas to cut bills and boost investment in affordable energy.”
Responding to today’s announcements on energy costs and the cost of living, Katie Schmuecker, Deputy Director of Policy and Partnerships for the independent Joseph Rowntree Foundation said: “The Chancellor has offered cold comfort to families in poverty, who are already rationing what they can spend on essentials such as heating and food.
“These families are now expected to find at least half of the eye watering increases in energy bills, when many are already getting into debt to keep their houses warm and food on the table.
“Three quarters of those who can claim the enhanced support are not in poverty. Meanwhile inflation is set to rise at more than double the rate of benefits. This support will not get people through the next few months and it will not protect those most at risk of hardship.
“People in poverty are hit hardest by all these pressures because our social security system is simply not offering adequate support, and until that changes they will continue to be exposed to every economic shock.
“The Chancellor has made his choice, the harder choices will now be coming for those who still can’t afford essentials for themselves and their families.”
University of Birmingham’s Harriet Thomson on the rise of energy price caps: “This news comes at a time when families across Great Britain have already been facing years of rapidly increasing energy prices, as well as chaotic energy market conditions with the collapse of around 20 energy supplies since January 2021 alone.
“Just last month, ONS data found that 2 in 3 adults said their costs of living had gone up in the past month, with 79% of those attributing blame to gas and electricity prices.
“We know from the extensive body of existing evidence on this topic that lower income households will be disproportionately hit by the price cap increase, risking pushing millions more into a situation fuel poverty.
“This will have serious consequences for physical and mental health, social isolation, and educational attainment, with households forced to make difficult everyday decisions over whether to ‘heat or eat’.
“Moreover, these price increases are likely to push more people into using risky and/or polluting alternative energy sources, such as DIY candle heaters that have been linked to house fires, burning scrap wood and other flammable materials, and digging up peat. As well as the obvious risks to human life, these approaches will also exacerbate climate change.
“It’s clear that energy companies are reeling from the potent combination of cash flow reductions due to pandemic-related economic pressures on families who are building up more energy debt, and the global gas crisis.
“But the answer is not to burden households with yet more costs. The energy market is broken and needs radical reform – now is the time for the UK government to show ambition and commitment to the nation by investing in deep retrofits of our old and leaky housing stock, and to rollout decentralised renewable energy systems at scale.”
Statement to Parliament on the UK gas market by the Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng:
With permission, Mr Speaker, I will make a statement on the UK Gas Market.
As Honourable and Right Honourable members will be aware, over the weekend I held meetings with Ofgem and energy companies, and this morning I held a further roundtable discussion.
Today I will set out the government’s approach to manage the impact of high global gas prices affecting the UK – and countries across Europe.
To begin, I want to make two points extremely clear.
Firstly, Mr Speaker, I must stress that protecting consumers is our no.1, our primary focus – and will shape our entire approach to this important issue.
Secondly, I also want to reassure the House that while the UK – like other countries in Europe – has been affected by global prices, Britain benefits from having a diverse range of gas supply sources.
We have sufficient capacity and more than sufficient capacity to meet demand, and we do not expect supply emergencies to occur this winter.
There is absolutely no question, Mr. Speaker, of the lights going out, or people being unable to heat their homes.
There’ll be no three-day working weeks, or a throw-back to the 1970s. Such thinking is alarmist, unhelpful and completely misguided.
To begin I’d like to set out some context for the global situation we are now witnessing.
As the world comes out of COVID-19 and economies begin to reopen, we are seeing a dramatic uptake in global gas demand, much faster than many people had anticipated.
High demand in Asia for Liquified Natural Gas (LNG), transported globally by freight, means that far less LNG has reached Europe. Weather events in the US have also affected LNG exports to Europe.
So therefore, increased demand, coupled with reduced variety of supply globally, has put upward pressure on the price of gas traded globally.
High wholesale gas prices have subsequently driven an increase in wholesale power prices, with a number of short-term markets trading at, or near, record levels.
While we are not complacent, we do not expect supply emergencies this winter. This is a very important point. This is not a question of security of supply.
The GB, the Great British, UK gas system has delivered securely to date and is expected to continue to function effectively, with a diverse range of supply sources and sufficient delivery capacity to more than meet demand.
The National Grid Electricity System Operator has the tools within itself to operate the electricity system reliably, to balance that system and we remain confident that electricity security can be maintained under a very wide range of scenarios.
We aren’t reliant on any one particular source for our gas, like many of our friends in Europe.
Domestic production, and member and right honourable members should know, is still our largest single gas supply source, and accounted for about 50% of total supply last year.
However, the UK also benefits from an excellent relationship with Norway, one of our most important and reliable energy partners, and that delivers nearly 30% of our total gas supply. Just in the past half hour, I was privileged enough to speak to the Norwegian Energy Minister to welcome the announcement from Equanoir today that gas production will significantly increase from 1 October to support the UK and European demand.
Our remaining supply, Mr Speaker, is sourced from global markets via two interconnectors to the Continent, and also through our LNG infrastructures, which is as many of you know, the largest in Europe.
Obviously, the global gas situation has had an impact on some energy suppliers. We have already seen four suppliers exit the market in recent weeks, and we may well expect to see further companies exiting the market over the coming weeks.
I have to say, Mr. Speaker, at this point that having been energy minister for nearly 2 years before I became Secretary of State, we saw in those two years, at around this time, companies exiting the market. It may well be more this year, but this is something that, as this time of year, and ahead of the renewable obligation, is often seen in the market.
I want to make clear today, however, that it is not unusual for smaller energy suppliers to exit the market – particularly, I may add, when wholesale global prices are rising.
The sector has seen regular entry and exit over the last five to 10 years, that is the feature of a highly competitive market.
The current global situation may see more suppliers than usual exiting the market, but this is not something that should be cause for alarm or panic.
We have clear, processes in place to make sure all customers are supplied with energy. When an energy supplier typically fails, Ofgem appoints another supplier to take on serving the customers and there is no interruption to supply. I reiterate, our first and primary concern is for the customer.
I’d like to stress three further principles, which are guiding my and the government’s approach in this matter.
Firstly, the government will not be bailing out failed companies. There will be no rewards for failure or mismanagement. The taxpayer should not be expected to prop-up companies who have poor business models and are not resilient to fluctuations in price.
Secondly, customers, especially and most particularly vulnerable customers, must be protected from price spikes.
And thirdly, Mr. Speaker, we must ensure that the energy market does not pay the price for the poor practices of a minority of companies, and that the market still maintains the competition that is a feature of today’s current system. We must not see a return to, I quote, the “cosy oligopoly” of years past, where a few large suppliers simply dictated to customers conditions and pricing.
I’d like to reassure all members, and honourable members and their constituents that the Energy Price Cap – which still saves 15 million households up to £100 a year is staying – isn’t going anywhere.
As I said earlier, our priority in this situation has to be the consumer, the Great British public, and the cap has done that effectively. It protects, and has protected, millions of customers from sudden increases in global gas prices this winter. We are committed to the Price Cap and it will remain in place.
Meanwhile, our Warm Home Discount, Winter Fuel Payments and Cold Weather Payments will continue supporting millions of vulnerable and low-income households with their energy bills.
It is absolutely vital that the energy supply sector remains a liberalised competitive market in order to deliver value and good service to consumers.
As a result of high global gas prices, members and right honourable members will have read, two fertiliser plants shut down in Teesside and Cheshire last week. They suspended the production of CO2 and anomia. A decision which has affected in the short-term our domestic supply of CO2, which is used in the food and drink, as well as the nuclear and health sectors.
Yesterday, I met Tony Will, the global chief executive of CF Industries. We discussed the pressures the business is facing and explored, quite thoroughly, possible ways to secure vital supplies.
Work is ongoing across departments in Whitehall, across government to ensure that those sectors impacted and affected by this announcement have appropriate contingency plans in place to ensure that there is indeed minimal disruption. To maintain our domestic supplies of CO2, we are in constant contact with relevant companies who produce and supply CO2 and we are monitoring the situation minute by minute.
Over the past few days, as has been widely reported, I have held several discussions with chief executives of the UK’s largest energy suppliers and operators, and also with Ofgem to discuss this vital issue.
Just this morning, I chaired a roundtable with UK energy companies & the representatives of consumer groups, in which I reiterated as I have on the floor of this house, the need for us all of us in government and industry to prioritise customers, in short to protect the consumer.
Meetings continue across government today and throughout the course of this week.
In terms of further actions and statements, this afternoon, shortly after the statement presented here, I will be making a joint statement with Ofgem setting out the government’s next steps following healthy and illuminating discussions with them and suppliers.
Mr Speaker, our security of gas supply is robust. But it is the case that the UK is still too reliant on fossil fuels. Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to strengthen our energy security into the future.
Thanks to the steps that we have made as a government, renewable energy has quadrupled in terms of gigawatts capacity since 2010, far more than quadrupled in fact – but there is clearly a lot more we can do in this area.
That is why we committed to approve at least one large-scale new nuclear project in the next few years, and are backing the next generation of advanced nuclear technology with £385 million, helping to attract billions of pounds in private capital and create tens of thousands of jobs.
Consumers come first. We must protect our constituents.
Gas market and soaring fuel prices: joint statement from Government and Ofgem
Joint statement on the UK gas market from Business and Energy Secretary Kwasi Kwarteng, and Ofgem chief executive Jonathan Brearley:
The recent increase in wholesale global gas prices continues to be a cause of concern for consumers, businesses and energy suppliers across the UK.
We want to be clear that this is not an issue of supply – the United Kingdom benefits from having a diverse range of gas supply sources with capacity that can more than meet demand.
This morning we hosted a roundtable with leading energy suppliers and consumer groups to hear about the challenges they currently face. There was overarching consensus among meeting participants that the top priority must be ongoing support for energy customers, especially the elderly and vulnerable. In the event an energy supplier fails, we are committed that consumers face the least amount of disruption possible – and there are clear and well-established processes in place to ensuring this is the case.
In the coming days, we will also meet with smaller and challenger energy suppliers and set out the next steps for protecting consumers, businesses and energy suppliers from these global prices rises. Central to any next steps is our clear and agreed position that the Energy Price Cap will remain in place.
Customers encouraged to contact supplier for support and switch to better deal if possible
Support available for customers struggling to pay bills or in vulnerable circumstances with additional help for those on prepayment meters
Energy suppliers sign up to industry commitment to reach out to those who most need help this winter
Customers can avoid the increase by shopping around or asking their supplier to put them on a better deal
The energy price cap will increase from 1 October for the 15 million customers it protects. Those on default tariffs paying by direct debit will see an increase of £139 from £1,138 to £1277. Prepayment customers will see an increase of £153 from £1,156 to £1309.
This increase is driven by a rise of over 50% in energy costs over the last six months with gas prices hitting a record high as the world emerges from lockdown.
Surging global fossil fuel prices are already driving up inflation for consumers, making fixed rate energy tariffs not covered by the price cap, as well as petrol and diesel more expensive.
The price cap offers a safety net for customers who haven’t switched by making sure that suppliers only pass on legitimate costs.
Those on default tariffs are saving an estimated £75-£100 or £1 billion every year as a result.
Any customer in vulnerable circumstances or worried about paying their energy bill should contact their supplier to access the support available.
Customers may be eligible for extra help such as affordable debt repayment plans or payment breaks, emergency credit for prepayment meters and a £140 bill rebate under the Warm Home Discount.
Last week suppliers also signed up to an industry commitment to reach out to those who most need help this winter.
Customers can also shop around to save money before the increase takes effect on 1 October.
Those who don’t want to switch supplier or are unable to can ask their supplier to put them on a better deal.
Jonathan Brearley, chief executive of Ofgem, said: “Higher energy bills are never welcome and the timing and size of this increase will be particularly difficult for many families still struggling with the impact of the pandemic.
“The price cap means suppliers only pass on legitimate costs of supplying energy and cannot charge more than the level of the price cap, although they can charge less.
“If you’re struggling to pay your bill you can get in touch with your supplier to access the help that’s available and if possible, shop around for a better deal.
“We have put tough rules in place to ensure suppliers treat customers who are struggling with bills fairly, and welcome their commitment to reach out to those who most need help this winter. Where help is not forthcoming, we will not hesitate to act.
“I appreciate this is extremely difficult news for many people, my commitment to customers is that Ofgem will continue to do everything we can to ensure they are protected this winter, especially those in vulnerable circumstances.”
Ofgem adjusts the price cap twice a year based on the latest estimated costs of supplying energy.
The biggest and most unpredictable factor is the wholesale cost of electricity and gas paid by suppliers and influenced by global markets. This accounts for roughly 40% of the overall price cap level.
Gas prices have risen to a record high in Europe due to a recovery in global demand and tighter supplies. This is increasing the cost of heating homes and pushing up electricity prices.
Last winter, the level of the cap fell by £84 after passing onto customers the savings from lower wholesale energy costs as countries went into lockdown and demand fell.
With the combination of more people working from home and the current colder temperatures, heating bills for most people across the UK are rocketing.
Energy bills will rise further for millions more after the regulator, Ofgem, lifted the price cap on standard tariffs back to pre-pandemic levels but there are lots of simple things you can do to keep cosy and reduce your fuel bills during the current chilly period.
Here are some top tips from NHBC, the UK’s leading warranty and insurance provider for new build homes, to help you save on your winter bills:
· Reduce draughts – an important job as winter approaches is to make sure that your house does not have any unintended draughts. Floorboards and skirtings usually go ignored but cold air can easily filter through, so check for gaps and fill them in. Check to see if your letterbox is draughty, which can lead to cold hallways – installing a letter box draught excluder that fits onto the inside of your front door is an inexpensive easy DIY job. If you have an open fireplace and chimney which is not used, this can be draught proofed to stop warm air escaping and cold air entering your property. Remember that openings for ventilation should not be blocked.
· Bleed your radiators – trapped air or gas prevents hot water from heating your radiators fully so, if you have a radiator that is warm at the bottom but cool at the top, this may well mean there is air in the system, which may require bleeding to ensure maximum efficiency of the heating system.
· Loft insulation – insulating your loft is a simple, inexpensive and effective way to reduce energy waste and lower your heating bills. All new houses are fitted with loft insulation that meets the latest building regulations but, if you are in an older property, you may want to think about renewing it or topping it up.
· Thick curtains – they can help to protect your home from losing heat through windows. It’s important to try to get as much sunlight into your home during the day as possible but, as soon as dusk falls, remember to close curtains to reduce the need for additional heating.
· Keep radiators free – a common mistake we often make is to place our sofas in front of the radiators which can absorb the heat.
· Cavity wall insulation – around a third of all the heat lost in an uninsulated home escapes through walls so, if you live in an older property, considering thermal insulation of cavity walls could save you lots of money.
· Loft hatches – energy loss through the loft hatch is often overlooked. Insulating the hatch and ensuring that an effective draught seal is in place will help to keep heat energy in and your home warm.
· Windows – energy-efficient glazing keeps your home warmer, allowing less heat to be lost. Double glazing is fitted as standard to new-build homes but, if your house is older, replacing windows could be a good investment as they help to keep warmth in and reduce external noise.
· Service your heating system – all central heating boilers should be serviced and safety checked at least once a year by a Gas Safe Registered engineer. If your boiler is old, then consider an upgrade. According to the Energy Saving Trust, a new A-rated condensing boiler can save up to £315 a year on heating bills – most new homes have this type of boiler.
· Room temperature controls – your thermostat should typically be set between 18°C and 21°C, but by installing thermostatic radiator valves you can set different temperatures in different rooms (turn down the radiators in unoccupied rooms), according to individual preference. These will be standard in new homes but are easily fitted to existing radiators.
· Floor insulation – insulating your ground floor or floors above any unheated spaces e.g. integral garages will assist in keeping your home warm.
· Insulating tanks, pipes and radiators – Lagging water tanks and pipes and insulating behind radiators reduces the amount of heat lost, so you spend less money heating water up, and hot water stays hotter for longer.
Standards and Policy Manager at NHBC Giles Willson, said: “People living in new homes typically benefit from lower energy bills because their properties are built in line with the latest Government regulations for energy efficiency.
“However, whether you live in a newly-built home or an older property, there are a lot of ways that could save money on utility bills during the coldest part of the year when many millions of us are also working from the kitchen table and home-schooling our children.”
*Energy Price Cap extended until end of 2021, protecting around 11 million UK households from being overcharged
*households on standard variable and default energy tariffs will continue to save between £75 and £100 a year on dual fuel bills
*2.8 million electricity and 2.1 million gas customers switched supplier in the first six months of 2020
Around 11 million households across the UK will be protected from being overcharged on their energy bills thanks to an extension to the government’s Energy Price Cap until the end of next year.
The Energy Price Cap shields those least likely to shop around for the best deals – including the elderly and most vulnerable – from being charged excessive prices.
Since its introduction in January 2019, the cap has saved customers around £1 billion a year, equivalent to around £75-100 a year for typical households on default energy tariffs.
An additional 4 million households with prepayment meters on default tariffs will also come under the protection of the cap from January.
Business and Energy Secretary Alok Sharma said: The Energy Price Cap has been vital in ensuring customers do not pay too much on their bills, which is why we are keeping it in place for at least another year.
“Switching energy supplier to find the best value deals is still the best way to save on bills, but this government is determined to make sure all customers are treated fairly and get the protection they deserve.”
In addition to the price cap, millions of customers have been able to benefit from lower bills as the numbers of those switching to cheaper tariffs has increased and the rollout of smart meters has progressed in recent years.
A total of 2.8 million electricity and 2.1 million gas customers switched supplier in the first 6 months of 2020, building on record numbers of households switching to cheaper tariffs in 2019, the first full year of the Energy Price Cap.
However, more than half of customers are still on standard variable or default tariffs, where, in the absence of the cap, they would likely still be paying excessive charges for energy use.
In August, the independent energy regulator, Ofgem, recommended an extension to the cap following a review into the market. Today’s announcement follows that recommendation.
The Energy Price Cap extension is the latest government measure to help vulnerable customers with their energy bills and follows particular support during the coronavirus pandemic.
Energy suppliers have given prepayment and pay-as-you-go customers support when they faced financial distress.
Those with prepayment meters have also benefited from a price cap that is in place until the end of the year.
Today’s announcement means a further 4 million households with prepayment meters on default tariffs will continue to be protected from excessive prices by the wider Energy Price Cap once the Competition and Market Authority’s Prepayment Meter Cap expires at the end of 2020.
Jonathan Brearley, Chief Executive of Ofgem, said: The Secretary of State’s announcement means that 15 million households will continue to be protected under the price cap and will pay a fair price for their energy in 2021.
“Although those protected by the cap are paying a fair price, they can also reduce their energy bills further by shopping around for a better deal.
“Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy system.”
Natalie Hitchins, Head of Home Products and Services at Which?, said:“With energy bills expected to rise and tighter coronavirus restrictions returning to many parts of the country, it is good to see the regulator taking steps to protect vulnerable customers and ensure they can stay warm this winter.
“Anyone facing financial difficulty or struggling to pay their energy bills should speak to their provider about what support may be available to them. Households could also potentially save themselves hundreds of pounds a year by switching to a provider offering a cheaper deal and possibly better customer service.”
Customers looking for cheaper energy deals can compare deals with Which? Switch, a transparent and impartial way to compare energy tariffs and find the best gas and electricity supplier for you.
Which? calculates that a medium user (using 12,000kWh gas and 2,900kWh electricity per year) on a dual-fuel default tariff at the level of the current price cap could save up to £221 by switching to the cheapest deal on the market. Based on widely-available tariffs available across England, Scotland and Wales, paying by monthly direct debit, with paperless bills. Data is from Energylinx and correct on 13 October 2020.
Our Power, the housing association-backed energy supplier, has ceased to trade. It’s understood Our Power has around 31,000 domestic customers.
Company directors blame volatile energy markets for the firms collapse, which will result in seventy job losses.
In a statement, Our Power directors said: “It is with heartfelt regret that Our Power board of directors has taken the decision to close by taking the company into administration.
“Directors had no choice but to reach this decision as the requirement to bring working capital into the business outpaced our ability to improve revenue collection and raise funds.
“The leadership team and directors have done their utmost to try to find a solution but have been unable to and reluctantly took the decision to close the business.”
Under Ofgem’s safety net, the energy supply of Our Power’s customers will continue and pre payment meters can be topped up as normal. The outstanding credit balances of domestic customers will be protected.
Ofgem will choose a new supplier to take on Our Power’s customers as quickly as possible. This supplier will contact these customers shortly after being appointed.
Ofgem’s advice to Our Power’s customers in the meantime is:
Do not switch to another energy supplier.
Take a meter reading ready for when your new supplier contacts you.
This will make the process of transferring customers over to the chosen supplier, and paying back their outstanding credit balances, as smooth as possible.
Philippa Pickford, Ofgem’s director for future retail markets, said: “Our message to energy customers with Our Power is there is no need to worry, as under our safety net we will make sure your energy supplies are secure and your credit balance is protected.”
“Ofgem will now choose a new supplier for you, ensuring you get the best deal possible. Whilst we’re doing this our advice is to ‘sit tight’ and don’t switch. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your new tariff.”
“We have seen a number of supplier failures over the last year and our safety net procedures are working as they should to protect customers.”
Updates are available from our website or through our twitter feed @ofgem.
Customers who have questions should visit the FAQs on our website. Or if they need additional support, call Citizens Advice on 03454 04 05 06 or email them via their webform. Alternatively, get in touch through Ofgem’s facebook or twitter feed @ofgem.
Port of Leith Housing Association has issued this advice to their tenants:
Important notice for Our Power Energy customers
We have been informed that Our Power Energy Supply Ltd has gone into administration. The energy regulator Ofgem will select a new supplier to take over any customer accounts held by Our Power.
If you are a customer of Our Power your energy supply will continue as normal and any credit you have will be transferred to the new supplier. If you have a meter, you should continue to top it up as usual.
