Ofgem to reform market and introduce pre-paid meter price cap

Millions of customers on pre-paid energy contracts will be protected from April 2017 with an interim price cap, the energy industry regulator said on Wednesday.

The office for gas and electricity markets (Ofgem) said it will implement recommendations from the competition and markets authority (CMA), after a two-year investigation found that two thirds of households were “disengaged” and paying more for their energy compared to those who switch tariffs.

The CMA said energy suppliers should handover details of any customer who has been on expensive tariff for three years and persuade them to switch to a cheaper supplier.

Ofgem chief executive, Dermot Nolan said: “The CMA’s final report is a watershed moment for industry and consumers and points the way to a fairer and more competitive future. I call on energy companies and consumer groups to seize this opportunity.”

The interim price cap will save households, which use prepay energy meters, about £75 a year.

Ofgem found in an annual review that the proportion of people on expensive standard variable tariffs dropped to 66% in March from 69% last year as switching rates increased.

However, Ofgem said that it would not cap standard variable energy tariffs, only pre-paid, as it was not in the best interest to customers.

Nolan told BBC Radio 4’s Today programme that the CMA recommended “remedies” and Ofgem would make the market fairer and encourage customers to switch suppliers.

"The regulator has made a very clear promise today that it will ensure that customers get clarity, that no supplier will consciously be allowed to confuse customers," Nolan said.

"We have been given a clear steer by the authority, which we will deliver very seriously, to ensure that energy suppliers that we think are consciously trying to confuse people will be enforced against."

E.ON, one of the big six energy suppliers, said it will review Ofgem’s proposals from the CMA report in detail to fully understand the implications to its customers.