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Pre-payment meters price cap to go ahead to help 'vulnerable' energy customers

Published 03/08/2016

Ofgem said it will work closely with suppliers to help 'disengaged customers' who remain on expensive energy tariffs
Ofgem said it will work closely with suppliers to help 'disengaged customers' who remain on expensive energy tariffs

Ofgem is to press ahead with proposals to introduce a price cap on pre-payment meters to protect four million "vulnerable" customers, the energy industry regulator has announced.

The watchdog's response follows a report published by the Competition and Markets Authority (CMA) in June setting out ways in which the market could be improved for customers.

Ofgem said it will work closely with suppliers to help "disengaged customers" who remain on expensive tariffs to shop around for better deals.

Chief executive Dermot Nolan said: "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 said the meter cap will help the "most vulnerable and least likely to switch" and will save them around £75 a year from next April.

The cap is expected to remain in place until 2020 when the introduction of smart meters, which will allow customers to access better deals, will be completed.

Next year the energy regulator said it will also pilot a database service - allowing rival suppliers to offer better value deals to those who are on standard variable rates for three years or more.

Speaking on the BBC Radio 4 Today programme, Mr Nolan insisted the regulator has already made it easier for customers to switch tariffs and will continue to speed up the process.

He defended the decision not to cap all variable tariffs, saying it is not in customers' best interests, and denied people remain confused by the range of options on offer by providers.

"The regulator has made a very clear promise today that it will ensure that customers get clarity, that no supplier will consciously be allowed to confuse customers," he said.

"We have been given a clear steer by the authority, which we will deliver very seriously, to ensure that energy suppliers that we think are consciously trying to confuse people will be enforced against."

The Big Six energy companies currently supply fuel to just under 90% of the domestic customers in the UK and generate about 70% of total electricity output in Great Britain.

Following a two-year investigation, the CMA warned that 70% of people were on the more expensive "default" standard variable tariff, costing consumers £1.4 billion more than a competitive market.

In an open letter sent on Wednesday, Ofgem said: "We expect suppliers to compete for all consumers by offering good value and innovative deals and providing good customer service.

"Ultimately, it is in suppliers' interests to make sure the CMA's reforms lead to lasting benefits for consumers."

The regulator added: "We will closely monitor how the energy market develops as these reforms are implemented, and will do so with a particular focus on consumer outcomes."

And it said it would "not hesitate to take action" if it feels outcomes are "not as good as they could be".

Alex Neill, director of policy and campaigns at consumer group Which?, said: "It is good to see Ofgem swiftly taking forward the CMA's recommendations to increase competition."

He added: "The regulator faces a huge challenge in implementing all of these recommendations in a way that stimulates competition to deliver better outcomes for many more consumers.

"For this to happen the industry will need to commit to working with the regulator to ensure people get a fairer deal on their energy."

EDf Energy said it agrees "with the conclusion that some customers do not benefit enough from competition between suppliers, because they are not making an active choice of tariff or supplier".

"We are committed to engage more of these customers and put them in control, through purposeful competition that builds trust," a spokesman said.

"We want to see a strong, independent, respected regulator trusted by customers and companies alike. We therefore strongly support the improvements to the regulatory framework that the CMA has outlined."

An E.ON spokesman said: "As with the publication of the CMA report, we will now review Ofgem's proposals in detail to fully understand the implications for our customers."

First Utility, the UK's largest independent energy provider, said it was dissatisfied with the proposals and questioned the effectiveness of them.

Ed Kamm, UK managing director First Utility, said: "The CMA's report rightly identified the problem: too many people - some 70% of UK households -are overpaying for their energy.

"But the proposals put too much onus on the customer, don't go far enough and the timing of their implementation is baffling. Ofgem itself admits that consumers who are already engaged in the market will see the first benefits.

"We are in real danger of continuing to fuel a 'tale of two markets' - helping those who already shop around and doing little to properly help those who are continuing to pay much more than they need to or should."

Independent supplier Good Energy also welcomed Ofgem's move, saying that for "far too long the Big Six have taken loyal customers for granted".

Chief executive Juliet Davenport said: "Consumers deserve a fair and transparent market so they can have confidence in their energy supplier. And energy companies deserve a level playing field which supports and encourages competition."

Audrey Gallacher, a director at Energy UK, the trade association for the energy industry, defended energy providers for not automatically signing up their customers to the cheapest tariff.

She insisted the energy industry is "competitive for anyone who wants to go out and engage in the market".

She told the Today programme: "That's what the focus is on now - to ensure that people have enough information available to them and enough reassurance to go out and do it.

"You don't even have to switch supplier. I want to encourage people to call their company and make sure they're on the best possible deal."

Justin Bowden, national officer of the GMB union, said: "Here we go again with more Ofgem tinkering over the pretence that a free market is possible in this sector.

"Ofgem should be abolished and the Government itself should take over responsibility for regulating the industry so both are accountable to Parliament.

"Government cannot duck taking the decisions needed to keep the lights on and ensure the decarbonisation of the sector. Government should also have powers to cap prices and limit profit levels and, where necessary, to finance and run power stations."

Labour MP Caroline Flint criticised the watchdog, saying this was "Ofgem's big opportunity to stand up for the common good and they have failed again".

"Instead of reforms to help the many, they have tweaked to help just a few," she said.

"The protection for pre-payment meter customers is welcome but they are just one in seven consumers.

"For the vast majority, the 70% who have been paying over the odds on standard variable tariffs, this announcement promises only more calls and emails from other energy companies.

"The energy market needed a jolt, not a nudge. A protected tariff, even for a limited time, aimed at the majority of consumers, would have addressed the shortcomings of a failing market.

"At a time when consumers are also going to be paying on top of their bills for nuclear, for smart meters and for renewable energy, this adds to the demands that they pay a fair price for their energy."

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