Ofgem adjusts its price cap twice per year, based on estimates from wholesale gas and energy costs paid by suppliers.
After Ofgem, the UK regulator stated that the price cap for the most popular tariffs would rise by 12%, energy bills will increase by £139 per year.
This will result in a rise of £1,277 for eleven million households. However, 4mln pre-payment meters will see a steeper increase with their cap increasing by £153 to £1,309 (a 13% increase).
Jonathan Brearley, boss of Ofgem, blames rising wholesale energy prices for the rise.
He explained to the BBC that the reason the price cap is rising is because of a record-breaking increase in energy prices, not only in gasoline and electricity but also in petrol and diesel.
He said, “I understand this is extremely difficult news to many people,” in a statement.
“Higher energy bills are not something we should be able to tolerate. This will make it even more difficult for families who still have to deal with the effects of the pandemic.
The price cap ensures that suppliers don’t pass on the legitimate costs of providing energy. They cannot charge more than the price cap level, but they can charge less.
He advised energy consumers to shop around to find the best deal. Those who do not want to switch can request a better tariff from their supplier.
Customers who are subject to default tariffs from their suppliers will see the new rate come into effect on October 1.
Customers who have signed up to fixed plans with suppliers will not be subject to the price caps. The regulator stated that customers often have the opportunity to save hundreds of pounds by selecting a fixed tariff instead of the default.
Ofgem adjusts its price cap two times a year using estimates of wholesale gas and energy costs paid by suppliers. This accounts for 40% of the total price cap level.
Due to tighter supplies and a rebound in demand, gas prices in Europe have reached a record high.
Peter Smith, National Energy Action’s director of policy advocacy and policy, said that this is a “devastating increase”.
“Millions of households are already stretched to their limits, and this huge increase could not have come at a better time.”
At the London opening of trading on Friday shares in British gas company Centrica PLC (LSE:CNA), fell 0.5% to 47.8p
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