Cornered watchdog OFGEM bares its teeth and imposes interim price cap on gas and electricity suppliers

Around one million British households will save on average £120 a year when OFGEM extends its prepayment safeguard tariff for more vulnerable people this winter.

The UK regulator will work on extending price protection to at least a further two million vulnerable households for winter next year once the timing of the Brit-Govt energy price cap – pledged last week by UK prime minister Theresa May – is confirmed.

The Government’s plan to provide price protection to all households on default deals will reassure them that the price they pay reflects the underlying costs of supplying their energy.

OFGEM said British Big Six energy suppliers – such as Perth-based utility SSE and Spanish-owned Scottish Power – must step up their efforts to get more of their customers on default tariffs switched to better value deals.

As a result, OFGEM is introducing new rules to allow suppliers to roll customers coming to the end of their contracts onto another fixed deal instead of a poor value standard variable tariff.  

Dermot Nolan, Chief Executive of the OFGEM utility watchdog, warned: “We will  be carefully monitoring to ensure any new default deals do not become another way to penalise customers who rarely switch.

“We share the government’s concern that the energy market is not working for all consumers and we are determined to reduce the detriment suffered by those overpaying for their energy –  particularly those who are vulnerable. 

Dermot Nolan
Dermot Nolan

“The government’s proposed bill to provide price protection to those who remain on poor value default deals, such as the standard variable tariff, will give these households peace of mind about the price they pay for their energy. 

“In the meantime, we expect suppliers to do more to get customers on poor value default tariffs onto better deals.

“We also expect suppliers to co-operate when we  introduce our safeguard tariff for around one million vulnerable households this winter.”

Ryan Thomson, a partner at independent energy consultants Baringa, commented: “OFGEM’s announcement that it will extend its prepayment price cap to one million more vulnerable households this winter is a step in the right direction.

“A targeted cap can be implemented more quickly and easily than a broadbrush one, and will have a faster impact on individuals who stand to benefit most from market level protection.

“These vulnerable customers are already known to the industry through the Warm Homes Discount Scheme, which the safeguarding tariff can be added to without the need for new legislation. Energy companies are more likely to support an extension to an existing scheme, particularly as it’s aimed at vulnerable customers.

“However, we need to understand now how OFGEM plans to identify a further two million households next year. Suppliers will have to consider individuals who are not be easily identifiable through an existing scheme but who struggle to access the best deals on the market; for example, those without access to reliable internet services.

“The industry needs to agree what it means to be  a ‘vulnerable consumer’ so that no one falls through the cracks.

“OFGEM knows that trying to provide protection for the market as a whole through a single price cap is a recipe for legal wrangling, especially given the Competition Authority’s  rejection of market-wide price controls last year and strong opposition among industry players.

“OFGEM will continue to come under pressure from government to intervene in the market – particularly if we experience a colder than average winter, resulting in higher costs for consumers and bigger profits for energy companies.

“Meanwhile, OFGEM’s recent decision to grant Pure Planet a derogation to support their tracker tariff – allowing it to quickly vary its prices to reflect changes in the cost of supply – can only help the move towards a smarter and more competitive market.”

Meanwhile, Lawrence Slade, Chief Executive of Energy UK – the British trade association whose members include the ‘Big Six’ market-domineering gas and electricity suppliers – blamed poor insulation for high household utility bills.

He said: “The energy market is changing at a rapid pace – there are now over 50 suppliers to choose from and the Energy Switch Guarantee, launched by the industry, means it is simple, speedy and safe to switch, with many customers able to save much more than £100 in minutes by checking their tariff.

Lawrence Slade
Lawrence Slade

“It is right we ensure protection for the most vulnerable, while ensuring we do not risk halting the growth of competition and engagement in the market which is ultimately benefiting all consumers. 

“Making our homes energy efficient would be the most effective way of reducing bills for customers over the long term – which is why we are calling for the government to make it a fully-funded national infrastructure priority. 

“One of the major contributors to high energy bills, especially over winter months, is the poor quality of our housing stock.  As Ministers have recently highlighted, energy efficiency measures have helped to keep bills down – to around the same level we were paying nearly a decade ago.”

Justin Bowden, National Secretary of the GMB energy workers trade union, commented: “The only way to really protect consumers from being ripped off in a monopoly situation <such as energy providers> is for OFGEM to be abolished and its regulatory functions taken over by the government –  making its regulatory role subject to scrutiny and accountable to parliament with the powers to cap prices.”

12 Oct 2017

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