MSE News

British Gas owner in legal challenge to energy price cap

Energy firm Centrica – the parent company of British Gas – is seeking a judicial review of how energy regulator Ofgem has calculated the energy price cap. 

The energy price cap is set to come into force on 1 January. Centrica says it is not trying to delay the start date, but wants to change how the cap is calculated.

It is seeking a judicial review – which is a court proceeding in which a judge reviews the lawfulness of a decision made by a public body – into Ofgem's decision of how the energy price cap will be set.

The cap, which was announced on 6 November, will mean a typical user paying by monthly direct debit will pay no more than £1,137/year on average. But founder Martin Lewis has stressed that this figure is NOT a cap on the price you pay, and energy customers with higher usage could pay more than this.

See Martin's Warning: Energy price comparison savings are WRONG due to the price cap blog for more info.

To see if you can save on your energy bills, do a comparison using our Cheap Energy Club.

How does the price cap work?

The price cap was initially announced in October 2017 by Prime Minister Theresa May, with the aim of tackling the amount consumers have been overpaying the big six energy firms, estimated at £1.4 billion a year by the Competition and Markets Authority.

When the cap comes into effect in January, it will limit the maximum amount suppliers can charge for each unit of gas and electricity you use – and introduce a maximum daily standing charge (what you pay simply to have your home connected to the grid).

The current calculation for January's price cap means a typical user on a standard or default tariff would pay a maximum of £1,137/yr on average, paying by monthly direct debit, or £1,221/yr for non-direct debit households – though your maximum will vary depending on where you live and how much energy you use.

Yet this is just the initial level. The level of the cap is set to be updated at the beginning of April and October – and with wholesale energy prices rising over the last year, Ofgem has warned it may need to put up prices in April.

What does Centrica say?

Centrica has previously reported that it expected to lose £70 million in the first quarter of next year as a result of the price cap.

It wants to challenge the period of wholesale costs which have been used in Ofgem's calculation for the January price cap.

It says that Ofgem had originally planned to use wholesale costs from the period from February to July 2018 to calculate the price cap, but changed to using costs from the period between April and September 2018 after a consultation. Centrica is challenging this change. 

Centrica said in a statement: "Centrica plc is seeking judicial review of Ofgem's decision of 6 November 2018, which relates only to the treatment of wholesale cost transitional arrangements and Ofgem's decision not to investigate and correct its failure to enable the recovery of the wholesale energy costs that all suppliers incur.

"Through this action, Centrica has no intention to delay implementation of the cap, and does not expect the cap to be deferred in any way.

"As we have previously said, we do not believe that a price cap will benefit customers, but we want to ensure that there is a transparent and rigorous regulatory process to deliver a price cap that allows suppliers, as a minimum, to continue to operate to meet the requirements of all customers."

What does Ofgem say?

An Ofgem spokesperson said: "Ofgem carried out an extensive consultation process when setting the price cap and we believe that it offers consumers on poor value tariffs a fairer deal.

"In the event of a judicial review, we would defend our proposals robustly."

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