CMA consults on locational pricing for energy transmission losses

The Competition Markets Authority is seeking views on its plans to introduce a locational pricing system for transmission losses.

In its investigation into the energy market published in June, the CMA found that the absence of locational pricing for transmission losses in the wholesale electricity market in Great Britain gives rise to adverse effects on competition (AECs). Todays draft order puts an obligation on National Grid (as system operator of the transmission system) to ensure that all transmission losses are recovered from electricity users in a way that takes account of how the user’s location affects transmission losses. The obligation will come into effect on 1 April 2018.

The CMA is also consulting on the implementation of a price cap for prepayment customers from April next year. The price cap will remain in place until the end of 2020 when the smart meter roll-out – combined with other changes imposed on the industry by the CMA – is expected to tackle issues that prevent such customers accessing the better deals available to others.

Roger Witcomb, chairman of the energy market investigation, said: “It is unacceptable that 4 million households on prepayment meters, many of them vulnerable, face higher bills than other energy customers. This price cap will provide a real help to those customers until the disadvantages they face are addressed by the roll-out of smart meters and our other requirements.”

The draft order published today sets out the technical details of how the price cap will be calculated and implemented. The final version of the order will be published before Christmas so that the price cap can come into force in April next year. After its introduction Ofgem will monitor and update the price cap.

Find the draft orders and all other information published in relation to the investigation are available on the energy market investigation case page. To respond to the consultations, email or by 11 November 2016.

Related content:

Citizens Advice welcomes May’s promise of action to help energy customers

Ofgem proposes to cap installation charges for prepayment meters

Perspective: How can we ensure domestic electricity pricing is smart and fair in future?

How will gas and electricity networks be made fit for the future?

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