Centrica, the owner of British Gas, is launching a legal challenge on the government’s upcoming energy price cap.
The energy supplier is claiming that the threshold for the new price cap has been set too low, and the company will be applying for a judicial review against Ofgem. The industry regulator announced in September that a price cap would be introduced from 1st January after concerns were raised that customers were paying over the odds on standard variable tariffs.
Under the new price cap, consumers should pay no more than £1,137 a year on their energy bills, £68 lower than the current price of British Gas’s standard variable tariff. The price cap has been met with indignation from most energy suppliers since it’s announcement, with firms claiming the cap will damage profits and is forcing smaller suppliers to go out of business. Centrica warned last month that the price cap will cost the company £70m in profits in the first three months of 2019 alone.
The energy supplier have insisted that the legal action is intended to change the way the price cap is set, and that they have no interest in delaying it. There are now only a few days left until the cap will be introduced, potentially saving 11 million customers £76 a year on average, according to Ofgem. However, the regulator have already admitted that the price cap will likely rise in April 2019 due to rising wholesale costs, limiting any savings consumers could potentially make.
Centrica have explained their decision to mount a legal challenge against Ofgem. A spokesperson for the company said: “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.”
Ofgem have defended the level they have set the cap at. A spokesperson for the regulator said they have “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.”
Before Centrica announced they were launching a legal challenge, the government had warned energy suppliers not to dispute the price cap, in order to protect both customers and the energy industry’s reputation. “The government will strongly condemn any efforts to frustrate the process of putting the cap in place,” said the energy minister, Claire Perry. The government have yet to comment on Centrica’s legal challenge.