Energy regulator Ofgem has announced that an interim price cap set to save four million people on prepay meters around £75/year will come into effect from next April.
The price cap's introduction, which will protect the most vulnerable energy customers who are often least likely to switch suppliers, was confirmed today alongside other measures as Ofgem set out its response to a report into the energy market by the Competition and Markets Authority (CMA).
In June the CMA concluded a two-year investigation into the energy market to find ways to drive down prices for customers and increase competition between suppliers.
Its final report found that two thirds of households do not engage with the market and so are paying over the odds for their energy compared with those who have switched tariff.
Ofgem has today outlined its approach to the remedies proposed by the CMA, which also included opening up customer databases to rival firms and the development of a more effective relationship between price comparison websites and customers, more on which is below.
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How has Ofgem responded to the CMA report?
The CMA's 1,417-page report included more than 30 measures – a mixture of recommendations and orders – aimed at making the energy market cheaper and more consumer-friendly.
Here's how Ofgem has responded to some of the key issues raised in the report:
- A temporary price cap on prepaid tariffs. The CMA called for this to be carried out for a "transitional period" between 2017 and 2020. If you prepay for your gas or electricity, it means there'll be a maximum rate you can be charged. The cap will be set in line with the cheapest prepay tariffs in many regions of England, Wales and Scotland (Northern Ireland won't be included in the prepay cap as it has its own regulator).
Ofgem has confirmed that this interim price cap will save those who prepay for energy around £75 a year from next April. The cap will expire in 2020 when the roll-out of 'smart meters' is expected to be largely complete.
- Opening up customer databases to rival firms. The CMA argued that 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.
Ofgem says it will pilot the database service next year and start testing how well communication between companies and consumers works. The regulator adds that "protecting the privacy and security of consumers' data remains a priority". The database will go live nationally in spring 2018.
- A boost for price comparison websites. The CMA report laid the foundations for price comparison websites to help customers find better deals by giving them access to info such as customer meter numbers, and by allowing them to negotiate exclusive deals with suppliers. The CMA also proposed 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 will have to be "transparent" about the information they give.
Ofgem has vowed to work closely with suppliers "to help disengaged customers, who remain on expensive standard variable tariffs, to shop around and save money". In particular, it says it will trial more effective prompts on customers' bills to encourage them to compare tariffs. It claims to have also consulted on its approach to the CMA's recommendation to remove the requirement on price comparison websites to display all the tariffs on the market.
Meanwhile, Ofgem has published a separate consultation today on the CMA's proposals to remove parts of its retail energy market reforms so consumers can enjoy a wider choice of good value deals.
'A watershed moment for the industry'
Combined with the national roll-out of smart meters and faster switching, Ofgem believes the CMA's remedies "provide an opportunity to transform the energy market".
Ofgem chief executive Dermot Nolan says: "The CMA's final report is a watershed moment for industry and consumers and points the way to a fairer and more competitive future. I call on energy companies and consumer groups to seize this opportunity."
Ofgem also published its annual review of the retail energy market today, which found that the proportion of people on expensive standard variable tariffs has dropped from 69% last year to 66% in March this year as switching rates increase.