British Gas owner Centrica has been granted a judicial review into how Ofgem calculates wholesale costs for its default price cap.
The energy regulator insists it will “robustly defend” its approach to setting the cap but admitted there may be an “adjustment” of the price cap level if Centrica is successful in the review.
The cap will remain in place regardless of the hearing’s outcome, Ofgem stressed.
Centrica announced it was seeking a judicial review towards the end of last year ahead of the cap coming into effect on 1 January 2019.
The company was granted permission for the legal challenge by the High Court last week. If it is successful, the review could take place before the end of the year.
An Ofgem spokesperson told Utility Week: “The High Court has granted Centrica permission to argue its case at a full hearing.
“Ofgem will robustly defend in court our approach to setting the level for the first period of the default price cap and is confident of securing a successful verdict.
“Whatever the outcome of the case, the price cap will remain in place for the 11 million households on default deals and will continue to ensure that they pay a fair price for their energy.”
A Centrica spokesperson added: “We welcome the decision of the court to proceed to a more in-depth review.
“As it is an ongoing matter before the courts, it would not be appropriate to comment further.”
Centrica has made no secret that it does not believe the price cap is beneficial to customers and it believes Ofgem did not calculate it “fairly”.
When news emerged of Centrica’s intention to mount a legal challenge, the company said: “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.”
In a trading update ahead of the company’s annual general meeting earlier this week (13 May), Centrica said a “challenging trading environment” including the price cap, warmer weather and falling gas prices will impact its financial performance in the first half of 2019.
It cited the price cap as a reason for the loss of 234,000 British Gas accounts in the first four months of the year.
Other energy suppliers have also said the price cap has impacted their performance.
Eon said its retail arm in the UK remains under “considerable pressure” owing to “keen competition” and the price cap on default tariffs.
Posting its Q1 results earlier this week EDF said the 4.2 per cent decrease in organic terms was mainly due to the decline in nuclear generation, to a lesser extent the suspension of the capacity market and to the introduction of the default tariff cap.
Npower meanwhile also blamed its poor performance and customer exodus on the price cap. The company reported losses before interest and tax of €45 million (£39 million). This compared to a profit of €43 million for the same period last year.
The supplier, which is owned by Innogy, lost 103,000 customers in the first three months of 2019.
In February Ofgem announced the cap would rise by £117 on 1 April to £1,254. It will be reviewed again later this year.