Energy regulator Ofgem has made a change to how it calculates the energy price cap - and Martin Lewis has warned that it is making energy prices look 'falsely' lower than they were before.
Brits are expected to see a drop in their energy bills after Ofgem's new price cap of £2,074 came into effect on July 1. The price cap is based on an average household's yearly bill and sets the maximum unit rate at which energy providers can charge for gas and electricity.
Money saving expert Mr Lewis previously explained that Brits should see their energy bills drop by 17 per cent thanks to the change after the previous cap, determined by the government's Energy Price Guarantee, was set at £2,500. However, Mr Lewis has now issued a warning over a change that Ofgem has made to its definition of 'average use'.
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The regulator has adjusted its definition of the average household’s consumption to reflect that consumers are now using less energy to cut costs. Mr Lewis has said that quoting figures based on the new definition will make price drops seem bigger than they are.
The October price cap will be based on the new figures for average use - which are 2,700 kWh for electricty, down from the current 2,900 kWh, and 11,500 kWh for gas, down from 12,000 kWh.
Mr Lewis told his followers on Twitter: "Be warned - the energy prices quoted on many news shows are now FALSELY cheaper." He explained that Ofgem has updated its definition of annual use from now, which means that figures based on the previous definition should not be compared to figures based on the new definition. "It sounds like prices have dropped more than they have as it's not like-for-like," he warned.
He then posted a table of figures showing the difference between energy prices based on both the new and old figures. It showed that the current price cap of £2,074 based on the old figures would be £1,976 based on the new figures. Likewise, the predicted October cap of £1,978 based on previous figures would be £1,871 based on the new figures.
Energy industry consultancy Cornwall Insight released its latest predictions for upcoming price caps last week. Based on the old average use figures, it said the price cap will likely fall to £1,978.33 from October, but rise again from January to £2,004.40.
On Saturday, July 1, when the new price cap came in, Ofgem warned that a 'difficult and volatile' period for energy customers is ongoing but vowed to pass on the benefits of wholesale price drops 'quickly'.
The regulator said in a statement: “This remains one of the most difficult and volatile periods in history for energy consumers. As energy regulator, we have taken a range of steps to stabilise the market and protect vulnerable consumers.
“We will also continue to support energy customers by passing savings from drops in wholesale prices onto customers more quickly through the quarterly price cap. Anyone struggling to pay their bills should reach out to their supplier as soon as possible.”
Customers who pay for their energy in advance have seen a further drop in prices after the government axed an additional fee. Households with a pre-payment meter have in the past been charged a little more because it costs more for their supplier to serve them. Critics had argued that this penalises some of the least well off, who are more likely to have such a meter.
However, from July 1, that charge has been removed. The government said the change will see around three million households save around £21 each with the cost initially being covered by the goverment before the extra charges can be phased out by April 2024.
