Ofgem to consult on extending price caps to some vulnerable customers

Ofgem revealed plans today that will extend price caps to vulnerable customers and prompt more customers to switch. Some of the measures had been in train following remedies required by the Competition and Markets Authority, while government pledges to protect vulnerable customers – trailed as a price cap – covered just a small sector of the market. The limited price cap came after the price cap was not mentioned in the Queen’s Speech. Instead, Greg Clark, secretary of state at the Department for Business, Energy and Industrial Strategy, wrote to Ofgem telling it to use existing powers to limit tariffs.

Those expecting price caps for all those on Standard Variable Tariffs were disappointed, as Ofgem said it would only apply a cap (dubbed a ‘safeguard tariff’) to vulnerable customers. Ofgem said it would consult on the option but did not give a timetable.  Analyst Lakis Athanasiou of Agency Partners said it is “likely to be months away rather than weeks” and noted that “the political landscape may well have changed by then.” Athanasiou estimated that if Ofgem extended the safeguard tariff to those receiving the Warm Home Discount it would cover 8% of customers. He noted that 15% of customers with prepayment meters would already be under a price cap.

Citizens Advice said extending the prepayment meter cap to those eligible for the Warm Home Discount is “the best way to protect the worst off.” Gillian Guy, chief executive, said: “We have been calling for the prepayment meter cap to be extended to all those eligible for the Warm Home Discount for years – and the regulator’s announcement today paves the way for protecting as many as 2.6 million more who can least afford rising energy bills. Extending the prepayment cap is the best way to protect the worst off – and suppliers must also do more to cut costs for all loyal customers. We’d like suppliers to have annual targets for getting their customers off standard variable tariffs, and a deadline after which any who haven’t switched for 3 years would also have their bills capped.”

Ofgem also said it would make it easier for customers to compete the switching process direct from price comparison websites – although it declined to force such websites to display all tariffs, instead allowing them to decide which to include.

The regulator said other options followed on from remedies required by the Competition and Markets Authority after it completed its investigation into the energy market. They included a trial in Northampton in which 10,000 customers who have been on one supplier’s standard variable tariff for over three years would receive personalised information on cheaper deals. That trial follows on from CMA’s requirement to open up a database of all such customers to allow third parties to offer them new deals.