Gas and electricity prices will be temporarily capped for four million households on pre-payment metres, after it was revealed that Britons could have been overpaying by around £1.7 billion.
An Ofgem-controlled database will also be launched, allowing rival suppliers to offer those on standard variable rates (SVRs) for three years or more better deals.
What has led to the announcement?
Last year a provisional report by the Competition and Markets Authority (CMA) highlighted a number of problems hindering competition in the energy markets. It also looked at shortcomings in regulation.
In its long-awaited report, the CMA said investigations revealed the largest six providers have been taking existing customers – 70% of whom are stuck on standard variable rate deals – for granted.
What does it mean for consumers?
Those on pre-payment meters will see £300 million slashed off their bills in total each year – or around £80 to £90 each on average – under the regulator’s plans to protect them with a price cap until 2020.
There will be a temporary cap on gas and electricity prices for four million households that are on pre-payment meters, who face limited competition from suppliers and whose ability to switch and find better deals is far more limited than for credit and direct debit customers.
Certain measures in Ofgem’s programme to help provide domestic customers with clearer information will be prioritised.
The report says that all measures concerning domestic and microbusiness customer information are to be “road-tested” prior to introduction.
What does it mean for energy providers and Ofgem?
Providers will have to share customer data to allow rivals to offer them better deals under proposals announced by the energy watchdog.
Restrictions on the ability of new suppliers to compete for pre-payment customers and reduce barriers such as debt issues that make it difficult for such customers to switch will be removed.
Regulatory and policy framework will be improved to provide a clear division of responsibilities and transparency in relation to policy creation and implementation and changes to industry codes.
The report also says there will be a strengthening of Ofgem’s independence, reporting powers and ability to drive forward changes.