Energy suppliers to be forced to make all tariffs available to new and existing customers
Energy suppliers will soon be forced to make all of their tariffs available to both new and existing customers as a result of new measures announced by the energy regulator Ofgem. The idea is to ensure consumers can switch to cheaper deals, and suppliers can handle the risks, if wholesale energy prices fall.
Due to unprecedented wholesale energy prices (those providers pay), energy prices for households have skyrocketed over the past six months and more than 20 suppliers have gone bust since September 2021.
As a result, Ofgem has announced a number of temporary measures aimed at helping suppliers manage the risks of the ongoing crisis. The measures announced include:
- Requiring all suppliers to make all tariffs available to new and existing customers.
- Requiring suppliers to pay a new charge to the losing supplier when acquiring new customers – if and when wholesale prices drop significantly.
The measures will come into effect on 14 April 2022, and are expected to last until autumn, when the regulator intends to introduce reforms to the energy price cap, which are currently being consulted on – though it does have the option to extend them through next winter, and may even consider whether they need to become long-term solutions.
These actions are all about providing stability if and when cheap deals return and people start switching again. But right now there are no cheap deals to switch to, with fixed tariffs much more expensive than the current price cap and the new cap from 1 April 2022. See Martin's video explainer on whether to stick on the price cap or fix.
What the new measures mean for bills
The main measure is forcing suppliers to offer all tariffs to new and existing customers, whereas currently suppliers can offer exclusive deals to tempt new customers to switch or existing ones to re-contract. According to Ofgem, this will help stabilise the market by limiting "unsustainable price competition" – so, reducing the incentive for providers to offer very cheap tariffs to new customers to encourage them to switch.
Ofgem adds that this will also limit price discrimination between new and existing customers, and will help improve consumer trust and confidence in the market, improving access to cheaper tariffs for consumers less willing or able to switch.
The other measure – the "market stabilisation charge" – is a charge on suppliers when they sign up new customers. When you switch, the new supplier will have to pay this fee to the old provider if wholesale energy prices fall significantly (at least 30% below the level Ofgem used to set the energy price cap).
According to the regulator, this will enable suppliers that have bought lots of energy in advance – to cover the higher number of customers on standard variable tariffs right now – to recover some of the costs if wholesale prices drop suddenly and they see huge numbers of customers switching away from their standard tariff.
While these measure may help reduce some of the risks for suppliers, it could delay the return of cheap energy deals once wholesale prices do start to fall. It could, for example, stop suppliers from offering very cheap new customer-only deals to entice customers to switch, or lead to higher prices on cheap deals for switchers, as suppliers will likely need to factor in the new charge into the price of tariffs.
This all comes when cheap deals are sorely needed following rocketing prices over the past six months.
What does Ofgem say?
An Ofgem spokesperson said: "The energy market has faced a huge challenge due to the unprecedented increase in global gas prices; a once in a 30-year event. We're putting in place short-term measures to protect consumers.
"All suppliers will have to offer existing customers the same deals available to new customers. This will ensure customers can benefit from all tariffs available in the market and enable more consumers to benefit when wholesale prices fall. We'll monitor how effective this is before considering whether it should become an enduring measure in the market.
"Suppliers will also be required to pay a market stabilisation charge to the losing supplier when acquiring a new customer, which will only be triggered if wholesale prices fall considerably below the level assumed in the price cap.
"Alongside tougher financial regulation, this will make sure that energy companies do not take disproportionate financial risks and suppliers that have done the right thing by purchasing energy in advance for their customers aren't penalised, whilst protecting the ability of switching consumers to benefit from cheaper tariffs when prices fall."
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