U.K. Watchdog Floats Hiking Energy Bills to Cover Utility Losses

The U.K. energy regulator is proposing an increase to its energy price cap to help utilities cope with additional costs from customer bad debts brought on by the pandemic.

Workers have lost jobs, been furloughed, or are working from home, increasing domestic energy use and some customers are struggling to pay their bills, Ofgem said in a consultation document published Friday. The proposed adjustment to the price cap would add 21 pounds ($27.86) onto the bills of 11 million customers to help prop up those that can’t pay.

“A supplier faces an immediate cash flow shortfall when a customer does not pay their bill, even if it takes time to recognize this as bad debt,” Ofgem said. “We therefore propose to set the adjustment using an initial estimate of these costs which we will subsequently adjust to reflect the actual costs once they are known.”

The price cap started in 2019 and limits the amount suppliers can charge customers who don’t switch tariff. The cap was the result of a two-year investigation into competition in the energy market by the antitrust watchdog, which found that 70% of customers at the six largest energy firms were on standard variable tariffs, the most expensive deals.

The consultation runs until Dec. 21 and the final outcome will be published at the start of February with the new price cap level that applies starting from April.

Shares in Centrica, the biggest supplier in Britain, rose 0.9%.

“Investors have been worried on whether the price-cap will cover bad debts from Covid-19 or not – so today’s announcement is a step in the right direction that the price cap should not only cap profits but also provide downside protection on bad debts,” Deepa Venkateswaran, analyst at Sanford C. Bernstein & CO. LLC said.

©2020 Bloomberg L.P.

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