British Regulator Proposes Retail Price Caps
Over 11mn more households on poor value default tariffs would be protected from being overcharged by energy retailers under proposals announced September 6 by Britain's energy regulator Ofgem.
The Domestic Gas and Electricity (Tariff Cap) Law gives Ofgem a duty and the powers to put the price cap in place, and Ofgem hopes to do that by end-2018.
When the price cap is introduced suppliers will have to cut their prices to the level of or below the cap, proposed to be £1,136 ($1468)/year for a typical dual fuel customer paying by direct debit, forcing them to scrap excess charges for people on poor value default deals.
The exact savings each individual household would make will depend on the price of their current deal, how much energy they use, whether they have both gas and electricity and how they pay for their energy but Ofgem puts the average at £75/yr with up to £120/yr for those on the most expensive. Revenue from high-priced standard variable tariffs (SVTs) typically subsidises the dozens of low-price offers to lure customers away from their present supplier; once those special offers expire, they end up on the SVT.
Ofgem CEO Dermot Nolan said that Ofgem had "made full use of the powers Parliament has given us to propose a tough price cap which will give a fairer deal to consumers on poor value default tariffs.... Consumers can have confidence that falls in energy costs will be passed on to them and if costs increase, Ofgem will ensure that any rise will be due to genuine increases in energy costs rather than supplier profiteering." It will update the level of the cap in April and October every year to reflect the latest estimated costs of supplying electricity and gas, ensuring that households that are covered will always pay a fair price for their energy.
The price cap is designed to be a temporary measure, in place until 2023 at the latest. This will allow Ofgem to put in place further reforms to make the energy market more competitive and work better for all consumers, including making switching energy supplier easier, quicker and more reliable.
Business and Energy Secretary Greg Clark said the government had “always been clear and determined that the injustice found by the Competition and Markets Authority [the UK's top competition regulator] that loyal customers were being exploited must end. This government is delivering on its promise to end that injustice and protect households across the country from unjustified price rises. Today’s announcement from the independent regulator setting out the detail of the government’s price cap will mean that households can have confidence that when energy costs fall their bills will too.”
A table published by Ofgem September 6 shows that only one of ten main energy retailers in Britain, Ovo, currently has SVTs that are below the proposed cap. The highest SVTs are currently charged by Spanish Iberdrola-owned Scottish Power, German Innogy-owned npower, and France's EDF - so their customers on that tariff will benefit the most, in Scottish Power's case with a roughly 10% tariff reduction.
Over half of all households in Great Britain are on default tariffs because they have never switched or have not done so recently. Many retailers including the largest Centrica (which trades as British Gas) as well as Iberdrola's Scottish Power hiked their SVTs in recent weeks, citing the pressure of higher wholesale prices; in many cases the impact of those retail hikes will be reversed by end-2018 by the new cap.
Energy retailed to households in Northern Ireland (also part of the UK) is separately regulated by Belfast-based Uregni.