The Competition and Markets Authority (CMA), the industry watchdog, has recommended to the energy regulator Ofgem to continue protecting prepayment meter (PPM) consumers beyond next year.
The prepayment price cap was set in place until the end of 2020 and is currently valued at £1,242/year based on the typical use of a dual-fuel consumer. The watchdog found out using Ofgem’s methodology that every PPM customer pays £1 more each weak as per current prices.
The price cap applies to every energy supplier except three green power suppliers Ecotricity, Green Energy UK, and Good Energy, which were granted permanent exemptions by the Ofgem for their corresponding standard variable tariffs (SVTs) price caps.
CMA’s Suggestion to Ofgem
The PPM price cap protects customers paying for their energy in advance against exorbitant fees since they are unable to change suppliers easily, unlike other fixed deal consumers.
CMA asked the Ofgem for an extension of the price cap applied to prepayment meters following a review conducted by the watchdog, citing the delay in the smart rollout campaign as a reason, which was pushed a few years more than the original deadline in 2020.
It also revealed that the standard tariff price cap set by the Ofgem utilised more detailed and current figures compared to CMA’s 2016 data while it investigated the market.
The watchdog applied the methodology recently introduced by Ofgem, which resulted in the £1 per week increase for prepayment customers as per present prices.
The CMA said in a statement that the adjustment was made to ensure that the price cap applies to the current market. It also fosters an effective competition between suppliers, giving customers a more extensive choice.
The watchdog further stated a too-low price cap might reduce consumer choice and competition as it could lead to suppliers exiting the market. It believes that prepaying customers are still adequately covered despite the adjusted price cap level.
The amendments are set to be implemented on 1 October 2019, which will be recalculated to consider the six months’ worth of change in the market.
Ofgem gives a nod to CMA’s decision, stating that the adjustment reflects the actual cost for PPM customers. It ensures fair pricing and prevents overcharging according to the regulator.
Exemptions to the Rule
The regulator has permanently exempted three clean energy providers Ecotricity, Green Energy UK, and Good Energy from the price cap applying to standard variable tariffs or SVTs. It means the suppliers will be able to charge customers a higher price compared to the SVT price cap. The reason being that these firms derive their power supply from renewable energy sources.
Along with the cap for PPM customers, suppliers are expected to observe the price cap set at £1,254/year for dual-fuel standard variable consumers.
The regulator has permanently exempted three clean energy providers Ecotricity, Green Energy UK, and Good Energy from the price cap applying to standard variable tariffs or SVTs. It means the suppliers will be able to charge customers a higher price compared to the SVT price cap. The reason being that these firms derive their power supply from renewable energy sources.
The exemption to the three supplier’s renewable SVT follows temporary derogations that should demonstrate three points. Firstly, consumers should be the ones to choose the tariff classified as SVT. Secondly, renewable energy production and generation should be adequately supported and need to be significantly higher than energy from obligations, subsidies or any mandatory mechanism applied. Lastly, since the tariff directly promotes renewable energy, the cost to the licensee of supplying power needs to be higher than the tariff price cap.
An Ofgem spokesperson said the three energy providers presented enough evidence during the process of application. The initial assessment prompted the creation of the temporary derogations to enable the regulator to investigate the evidence thoroughly and obtain and assess additional proof as necessary. After a full evaluation, Ofgem will implement enduring derogations.
Good Energy CEO and founder Juliet Davenport recognises the Ofgem’s decision as an acknowledgment of the supplier’s effort to clean and green energy. She cited the genuine support of their company towards clean technologies and growth of renewables and mentioned the customer’s active participation by choosing to avail of a renewable tariff.
