CMA moves towards price cap implementation

The Competition and Markets Authority has begun its introduction of a transitional price cap for prepayment customers.

It will consult on a draft order today which sets out the technical details of how the price cap will be calculated and implemented.

The final version of the order will be published before Christmas and the price cap will come into force in April 2017. After its introduction, Ofgem will be responsible for monitoring and and updating it.

The cap is being introduced in a bid to keep costs down for vulnerable customers and reduce bills by around “£300 million a year” for the four million customers with prepayment meters. It will remain place until 2020 when the full smart meter rollout is complete.

The cap is part of a raft of remedies from the Competition and Markets Authority (CMA) two-year investigation into the market, which aimed to reduce detriment to customers and increase competition in the energy industry.

CMA energy market investigation chairman Roger Witcomb said: “It is unacceptable that 4 million households on prepayment meters, many of them vulnerable, face higher bills than other energy customers. This price cap will provide a real help to those customers until the disadvantages they face are addressed by the roll-out of smart meters and our other requirements.”

The final report published by the CMA in June found that the cheapest available deals were £260 to £320 a year more expensive than those available for direct debit households.

The CMA is also consulting on a draft order which will introduce a locational pricing system for transmission losses aimed at reducing the amount of electricity lost on the transmission network.

Responses on the two draft orders are invited by 11 November 2016.