Energy firms to be allowed to contact rivals' customers to offer better deals

The Competition and Markets Authority (CMA) has been investigating the energy market to find ways to drive down prices for customers and increase competition between suppliers.

Other key proposals outlined in its final report published today include a temporary price cap on prepaid energy, giving price comparison sites access to more info and allowing energy companies to offer more than four different tariffs each.

Under the plans to open up customer databases from next January, suppliers will be ordered to give regulator Ofgem details of all customers who have been on their standard tariff for more than three years. These will then be put in a database through which rival suppliers can contact customers to offer cheaper deals.

However, amid fears that the scheme could lead to energy customers being spammed, the CMA's report says you'll be able to opt out of being contacted by post, and "will only be contacted electronically if [you] explicitly opt in to such communications".

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What are the changes in the pipeline?

The CMA's 1,417-page report details over 30 measures – a mixture of recommendations and orders – aimed at making the energy market cheaper and more consumer-friendly. Here are the key ones:

• A temporary price cap on prepaid tariffs. This will be implemented for a "transitional period" between 2017 and 2020 and means there will be a maximum rate those who prepay for gas or electricity can be charged. The cap will be set in line with the cheapest prepay tariffs in many regions.

  The CMA says if this cap had been implemented last year, the average prepaid energy bill would have fallen by around £75 a year. The cap will be removed in 2020, with the CMA predicting that by then other measures such as smart meters and a natural increase in competition will have narrowed the gap in price between those on prepaid and standard tariffs.

  This is an order rather than a recommendation, so implementation will begin in January 2017.

• Opening up customer databases to rival firms. An Ofgem-controlled central database will allow energy firms to contact and offer better deals to those who've been stuck on a rival supplier's standard tariff for at least three years.

  The measure is designed to address the fact that standard tariffs are usually the most expensive. The CMA found that 70% of households with the 'big six' energy suppliers are on these pricey standard tariffs.

• Removal of the 'four-tariff rule'. This rule, which means energy firms can only offer four different tariffs to customers at any given time, was originally implemented in April 2014 to simplify the market. But today's report found the cap has made some customers worse off, and says removing it would enable suppliers and price comparison websites to offer more competitive tariffs.

  This isn't an order though – it's a recommendation to Ofgem and the Department of Energy and Climate Change (DECC). So it's these two organisations which'll determine when this is implemented.

• A boost for price comparison websites. The ability of price comparison websites to help customers find better deals is set to be boosted by giving them access to info such as customer meter numbers, and by allowing them to negotiate exclusive deals with suppliers.

  However, the CMA is proposing that price comparison websites no longer be required to let customers view every tariff on the market. Instead they will be allowed to show only those they can help you switch to. But they will be required to be "transparent" about how they cover the market and the information they display.

  These are also recommendations rather than orders, so we don't yet know when they will take effect.

The CMA has been investigating the energy market to find ways to drive down prices for customers

What happens next?

The CMA will finalise its plans by December, with its orders being implemented from January, and Ofgem and the DECC announcing their own timelines for the recommendations.

What does the CMA say?

Roger Witcomb, chairman of the investigation, says: "Competition is working well for some customers in this market – but nowhere near enough of them. Our measures will help more customers get a better deal and put in place a modernised energy market equipped for the future.

"With far too many customers paying hundreds of pounds more than they need to, they will be alerted to the better value deals that are out there and it will be easier for them to identify a good deal and switch to it.

"Those that can help with this process, like price comparison websites, will be given the ability to play a more active role. In other markets, they've played a big part in driving down prices, increasing switching and enabling suppliers of all sizes to reach customers and, freed up, they can do the same here.

"More active customers will not only save themselves money but keep suppliers on their toes, addressing many of the problems that we've identified. There are promising signs in this market with smaller suppliers getting more of a foothold and making it easier for customers to get involved will push things more quickly in the right direction.

"For those customers on prepayment meters, whose options to switch are far more limited, we'll cap prices until the time that they too can benefit from competition."