Ofgem has today outlined its commitment to cap the energy bills of millions of households on poor value default deals by the end of 2018 if legislation is passed this summer.

The price cap, outlined in government legislation unveiled last week, will protect these people from being overcharged for their energy. Around 12 million households are currently on poor value default deals, paying as much as £300 more than those on the cheapest tariffs.

Many of these households have never switched, or have not done so for years. On February 26, the government introduced the Domestic Gas and Electricity (Tariff Cap) Bill before Parliament.

The Bill set out the proposed new statutory role for Ofgem, as the energy regulator, to deliver a price cap for all consumers on default tariffs, including standard variable tariffs.

In a letter to stakeholders, Ofgem has today committed to put the cap in place by the end of the year, provided that legislation is passed as expected before Parliament rises for the summer recess. Once this happens, Ofgem will publish a statutory consultation and draft license conditions for suppliers this summer.

Ofgem will then set the level of the cap, based on the latest estimates of energy costs, in the autumn. Following a brief implementation period for suppliers, the cap should be in place by the end of the year. Ofgem will be publishing a series of working papers over the next few months, outlining its approach to setting the default tariff cap. The first paper will be published this week.

Ofgem is already protecting over 5 million households from being overcharged after extending the prepayment meter safeguard tariff to almost 1 million more vulnerable consumers last month. Ofgem is working on contingency plans to extend this protection to a further 2 million customers next winter in the unlikely event that legislation for the wider price cap on default tariffs is delayed.

These vulnerable customers will be covered by the wider cap once it is in place.

Dermot Nolan, chief executive of Ofgem, said: “Ofgem is on course to cap energy prices for millions more consumers who are being overcharged by the end of this year once legislation is passed this summer. Ofgem is working with the government to implement the price cap and will ensure that consumers, particularly the vulnerable, get price protection as soon as possible.”