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The Competition and Markets Authority (CMA) has recommended that the prepayment meter cap should be extended after 2020.
The CMA had already issued a provisional order to regulator Ofgem to keep the cap in place beyond the end of next year because of slow progress in rolling out smart meters.
It has also confirmed that the cap should be set using Ofgem’s most recent default tariff cap methodology (DTC), which it says will result in prepayment customers paying roughly £1 a week more.
The amendments will come into effect on 1 October when the price cap is re-calculated to take into account changes in the energy market during the last six months.
Announcing its final decision this morning, the CMA said: “The adjustment is necessary to keep the cap accurate in today’s market. The prepayment price cap will continue to protect customers from high prices and give them wider choice in the market by enabling suppliers to compete effectively below the cap. A price cap set too low may lead to suppliers leaving the market, reducing both competition and consumer choice. Even with revised level of the price cap, prepayment customers will still be protected from unnecessarily high prices.”
Energy regulator Ofgem has previously said the cap will remain in place until 2020, but with a possibility of extension on annual basis up to 2023.
Ofgem will review the cap annually as to whether the conditions are in place for effective competition, before recommending to the government whether it should be extended.
In response to today’s decision, an Ofgem spokesperson said: “The CMA’s decision to change the PPM price cap methodology better reflects the true cost of providing energy to customers on pre-payment meters. This ensures the market offers choice and protection to prepayment customers both now and in the future.
“Under the default and PPM caps, households are protected and will always pay a fair price for their energy and not be overcharged.
“The new PPM cap methodology will be reflected in the next cap level, which will be announced on 7 August, and comes into effect in October. Alongside the price caps, we are continuing to work with government and the industry to deliver a more competitive, fairer, greener and smarter energy market that works for all consumers.”
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