Households could pay up to £75 less for energy as regulator slashes price cap

7 August 2019

Up to 15 million energy customers could see their bills lowered after changes announced by the regulator

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Millions of energy customers will see their bills fall this winter after the energy regulator lowered the price cap.

Ofgem says energy bills for 11 million default tariff customers will fall by £75 to £1,179 from October.

The pre-payment meter cap is also set to fall by £25 to £1,217 for around four million customers.

The default tariff price cap was introduced on 1 January 2019 and protects around 11 million households on default, including standard variable, tariffs.

The reduction in the default price cap is a result of a fall in wholesale energy prices. Ofgem says a combination of low demand during the winter, strong gas supply and relatively healthy storage levels have pushed down wholesale prices.

Dermot Nolan, chief executive of Ofgem, says: “The price caps require suppliers to pass on any savings to customers when their cost to supply electricity and gas falls.

“Households can cut their bills further in time for winter, and we would encourage all customers to shop around to get themselves the best deal possible for their energy.”

What is the cap?

Ofgem introduced the energy price cap on 1 January to protect vulnerable customers from unjustified price rises.

It updates the levels of the price cap each April and October. Energy companies are not allowed to charge more than the default price cap.

Shortly after the cap was introduced Ofgem announced it was raising the level of the cap by £106 as a result of rising wholesale costs.

Last month, the Competition and Markets Authority decided to bring the methodology for calculating the pre-payment cap in line with the default cap.

The level of the pre-payment meter cap is higher than the default tariff cap which the regulator says is due higher costs of pre-pay keys and cards used to top up pre-payment meters.

The price caps are a cap on a unit of gas and electricity, with standing charges taken into account.

They are not a cap on customers’ overall energy bills. This means the amount you pay will rise or fall depending on your energy consumption.

Does the cap work?

Analysis from Ofgem shows that that without the default tariff cap customers could be overcharged by up to £100 a year.

Experts have warned that the cap to lull energy customers into a force sense of security and that they would be better off shopping around.

Stephen Murray, energy expert at MoneySuperMarket, says the move will do little for customers on standard variable tariffs.

He says: “The cap isn’t even a year old and we’ve already seen three changes in pricing for the 11 million households on expensive standard variable and default tariffs.

“Despite the price cap level dropping by £75, it’s still more than the original level of £1,137 and crucially, there are more than 100 cheaper tariffs available to consumers in the market today.

"That means someone switching today could secure a deal that delivers three times the saving the price cap offers, while protecting themselves from this rollercoaster of price fluctuations every six months. It’s a no-brainer.”

Richard Neudegg, head of regulation at uSwitch, says those on prepayment meters, who are least able to afford their bills, would actually end up paying more than households with credit meters.

He says: This highlights that a blanket cap is not the best way to help those most in need, and that those people would benefit from more targeted protection.

“The only way for consumers to avoid the roller-coaster price changes we’ve seen with the standard variable tariff cap is to take power into their own hands and shop around for a cheaper fixed deal. Locking in a cheap deal now means people can be certain that the price they pay will remain steady for the year ahead.”  

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