ADVERTISEMENT

Centrica Unit Wins Court Review of U.K.’s Price Cap on Tariffs

Centrica Unit Wins Court Review of U.K.’s Price Cap on Tariffs

(Bloomberg) -- Centrica Plc’s British Gas unit won a court ruling that the way in which the U.K. regulator calculated the energy tariff price cap for the first quarter of 2019 was unfair.

British Gas’s claim, supported by Npower Ltd, SSE Plc, Electricite de France SA and EON SE, said that the way Ofgem calculated the cap, largely based on wholesale prices from a specific period, was calculated in an “insufficiently investigated, and demonstrably flawed” way.

“I am persuaded that the criticisms made by British Gas are well-founded,” Judge Geraldine Andrews said in the judicial review handed down in London on Wednesday.

The price cap was brought in during former Prime Minister Theresa May’s tenure in a bid to try to protect consumers from paying too much for gas and electricity. Centrica said in May that the cap had hit profits to the tune of 70 million pounds ($89.8 million).

“This outcome underlines the importance of transparent and rigorous regulatory processes to ensure well-designed regulation that is in the interest of a well- functioning energy market,” a Centrica spokesperson said in an emailed statement.

The first cap was 1,137 pounds a year for default tariff holders, but it was then raised to 1,254 pounds in April. It now sits at 1,179 pounds and is assessed every six months by Ofgem.

“The judgment does not change the fundamentals of the price cap, which remains in place and will continue to protect 11 million households on default deals, ensuring that they pay a fair price for their energy,” an Ofgem spokesperson said. The regulator said it is considering its options following the decision.

Ofgem altered its approach to the cap in the first period, which meant that suppliers, that had already hedged their prices to protect themselves against movements in the wrong period, faced losses when the cap was brought in, in January.

“There is no doubt that in fixing a single price cap for all suppliers, with a view to protecting current and future customers on default tariffs, GEMA had a complex and difficult task to perform. It was also put under significant time constraints,” the judge said.

To contact the reporter on this story: Jeremy Hodges in London at jhodges17@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson

©2019 Bloomberg L.P.