Ofgem cuts prepayment meter cap

New level takes safeguard tariff savings to £100 per year

Ofgem has announced a revised level for the price cap on prepayment meter tariffs which should see bills fall for approximately 3 million customers.

The review has cut the typical dual fuel tariff for prepayment customers from £1,067 to £1,048, providing a saving of around £19 a year.

This reduction builds on the £80 per annum saving Ofgem announced when it unveiled its safeguard tariff for prepayment customers in February this year.

Price regulation for prepayment meter customers came into effect in April, based on the recommendation of the Competition and Markets Authority (CMA) whose two-year energy market investigation found that prepayment customers were being overcharged for their energy.

The CMA’s report suggested that price regulation for prepayment customers could save them a collective £300 million per year and would help redress issues around the vulnerability of prepayment customers, who it observed do not have access to the same levels of choice available in rest of the market.

At the time the CMA published it remedies, the prepayment tariff drew criticism from some suppliers who warned it would cause unintended consequences.

Speaking to Utility Week before his departure from the company, Tony Cocker, former chief executive of Eon UK, said the measure was an “untargeted” approach to resolving vulnerability concerns because “the image – perhaps a newspaper image – of a PPM customer being old and vulnerable, is not necessarily correct”.

Cocker also said that the level at which Ofgem had chosen to set the tariff was “unsustainable and inappropriate”.

He added however, that Eon did not view the CMA’s findings as an “a la carte menu” and had therefore moved quickly to become compliant with the new regulation.

Ofgem has committed to review the level at which the prepayment tariff cap is set on a quarterly basis. Its latest update will take effect in October.

The regulator is also consulting on the possible introduction of a wider reaching safeguard tariff for vulnerable customers. It met with consumer groups last month to discuss how such a cap might be strucutred and who it might cover. 

Ofgem’s work on this comes as part of a wider set of measures which aim to deliver a “fairer” energy market and in response to pressure from government to show the regulator can protect vulnerable customers, ensure fair treatment for microbusiness customers, and resolve concerns about the impact of standard variable tairffs on the market.