The long awaited energy price cap comes into force today (1 January 2019).

Ofgem set the level of the cap at £1,137 on 6 November 2018, just £1 higher than the proposed level it announced in September.

The temporary measure, which aims to protect customers on default tariffs, has faced criticism from industry players.

British Gas owner Centrica revealed last month that it is seeking a judicial review against Ofgem over how the regulator calculated wholesale costs when it set the level of the incoming energy price cap.

The energy giant insisted it does not intend to delay the implementation of the cap with its actions. It stressed it does not believe Ofgem has calculated the price cap fairly.

Fellow big six supplier Npower welcomed the legal challenge.

A spokesperson for the company told Utility Week: “Throughout the SVT [standard variable tariff] price cap consultation process, we’ve been clear that we have serious concerns about calculations that led to the level of the cap.

“We believe the cap will be damaging to the energy industry, to investment in the UK and, ultimately, to customers – which is why we think Centrica are right to bring a legal challenge.”

Ofgem said it will defend its proposals “robustly”.

A spokesperson from the regulator said: “Ofgem 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.”

According to Ofgem, 11 million households on poor value default tariffs are set to save around £76 on average, while a typical consumer on the most expensive tariffs would save more than £120.

The regulator has already indicated that if the trend of rising wholesale costs continues it is likely that in February it will announce an increase for the price cap for April 2019.

Citizens Advice said the price cap means “fairer” prices but consumers should continue to shop around.

Responding to today’s introduction of the cap, Gillian Guy, chief executive of Citizens Advice, said: “The introduction of this cap will put an end to suppliers exploiting loyal customers. However, while people on default tariffs should now be paying a fairer price for their energy, they will still be better off if they shop around.

“People can also make longer-term savings by improving the energy efficiency of their homes. Simple steps, such as better insulation or heating controls, are a good place to start.”

When Ofgem announced the level of the cap its chief executive, Dermot Nolan, said: “From 1 January, the energy price cap will put an end to customers on default tariffs being overcharged as much as £1 billion for their gas and electricity.

“The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes.

“Consumers who want to cut their bills further should shop around for a better energy deal and while the cap is in place, we will continue our work to make this as easy as possible.”

The exact savings each individual household will be able to make with the cap will depend on the price of their current deal, how much energy they use, whether they have both gas and electricity and how they pay for their energy.

Lawrence Slade, chief executive of Energy UK has previously said that the price cap will “present a significant challenge for many of the 70+ suppliers in the retail market”.

He said suppliers are already facing steeply rising costs – the vast majority of which are out of their direct control.

On 19 July the Domestic Gas and Electricity (Tariff Cap) Act became law giving Ofgem the powers to put the price cap in place.

It is designed to be a temporary measure until 2023 at the latest. Ofgem says this will allow it to put further reforms in place to make the energy market “more competitive and work better for all consumers”.

The first update of the level of the price cap will be announced in February 2019 and come into effect in April 2019. It will then be updated every six months.

Critics of the price cap have previously warned that the poorest customers could end up paying more for their energy bills. Others have also raised concerns that the cap will reduce competition.

The cap will limit the price customers pay for each unit of energy they use. It will not limit their total bill. Customers will still pay more if they use more energy.

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