CMA: UK energy prepayment price cap should be extended beyond 2020

A revised methodology to calculate the cap means customers would pay an extra £1 a week on average

The competition watchdog has recommended Ofgem should continue to protect energy prepayment meter (PPM) customers beyond 2020.

A prepayment price cap – which protects customers who pay in advance for their electricity from high prices as they are not able to switch suppliers as easily as other consumers – was put in place until the end of next year.

Following a review, the Competition and Markets Authority (CMA), however, suggests it should be extended, given the full rollout of smart meters will not have completed by 2020.

It also found Ofgem’s default tariff price cap was set using more current and detailed data than that available to the CMA in 2016 when it was investigating the energy market.

As a result, the CMA decided to adopt the regulator’s more recent methodology, resulting in prepayment customers paying roughly £1 a week more based on current prices.

The prepayment price cap is currently set at £1,242 per year for a dual fuel customer with typical use.

The competition watchdog 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.”

The amendments to the price cap methodology will come into effect on 1st October 2019 when the cap is recalculated to take into account changes in the energy market over the last six months.

Ofgem said the CMA’s decision to change the methodology “better reflects the true cost” of providing energy to customers on prepayment meters, mostly vulnerable customers.

A spokesperson added: “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 7th 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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