A series of measures including capping pre-paid meter prices and encouraging people to shop around will be introduced in order to create a “more competitive, fairer energy market”, the UK’s energy regulator announced today.
From April 2017, Ofgem will introduce an interim price cap for people using prepayment meters. The cap has yet to be announced, but it’s expected to save households £75 a year.
Over the longer term, it is hoped prepayment customers will benefit from previously announced changes that will increase smart meter usage and make it easier to switch energy supplier.
The regulator will also run trials to see if more people can be encouraged to shop around with prompts on their energy bills showing how much they could save by switching.
While a database of people who haven’t switched their energy supplier for several years will be created by Ofgem. Energy companies will then be allowed to access this list to contact people who could save money by switching.
Ofgem will also consult on scrapping rules introduced in 2010, which include limiting suppliers to offering just four tariffs. These rules were designed to make the market simpler to understand for consumers, but the Competition and Markets Authority (CMA) argues that they have since been found to be ineffective.
Ofgem’s proposed remedies follow a two-year energy market investigation by the Competition and Markets Authority (CMA) that concluded in June.
Dermot Nolan, Ofgem’s chief executive 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 today published its annual review of the retail energy market, which suggests a slight fall in the number of people who have slid onto expensive standard variable tariffs to 66%, from 69% last year.
“More harm than good”
However, several experts have already criticised Ofgem’s proposals to fix the energy market.
One energy provider has already announced it intends to fight the ‘switcher database,’ saying it will lead to a barrage of junk mail for 20 million homes.
Dale Vince, Ecotricity founder, says: “After two years of deliberations the proposals from Competition and Markets Authority (CMA) are a massive disappointment.
“They’ve opted to create a new abuse –– sharing of everyone’s personal data with every energy company in the land – which is likely to create a 'blizzard of junk mail'.
“It's the wrong answer to the problem, they should have tackled unethical supplier behaviour, head on. Not create new burdens for energy customers.”
Mr Vince adds: “[Ofgem] ducked the one big issue before it – cracking down on the abuse of the 70% of households who’ve never switched supplier and are subject to price gouging –– where energy companies offer loss-leading tariffs to attract new customers and use longstanding customers to pay for them.”
Furthermore, the price caps for prepayment customers arguably don’t go far enough. Though these might save households £75 a year, the CMAs report found even the cheapest prepaid tariffs are around £300 a year more than the best direct debit deals.