A raft of 30 measures will be brought in, including a price cap on prepayment meters.
The Competition and Markets Authority (CMA) has published its final findings and recommendations from its two-year energy market investigation.
The watchdog has formed a package of 30 measures it claims will help drive costs down by increasing competition between suppliers and helping more people switch.
Prepayment meter price cap
One of the headline announcements was a price cap on prepayment meters.
Right now the cheapest tariffs for these households are around £260 to £320 a year more expensive than those available for direct debit customers. However, the options to switch are much more limited for the four million households on these meters.
As such, the CMA wants to introduce a temporary price cap, which it said would reduce bills by around £300 million a year, saving each household £75. This cap will remain in place until the introduction of smart meters is fully rolled out, which will allow these customers to get better deals.
Tackling the switching problem
The investigation also found 70% of domestic customers of the ‘big six’ energy firms – British Gas, SSE, npower, EDF, E.on and Scottish Power – are on expensive default standard variable tariff.
These households could save over £300 by switching to a cheaper deal.
The CMA has found that households have been paying £1.4 billion a year more because of an uncompetitive market. This figure has been revised down from the £1.7 billion overpayment reported in March.
To help the clear switching problem, suppliers will now have to give Ofgem details of all the customers who have been on their default tariff for more than three years.
This information will be put on a secure, Ofgem-controlled database which will allow rival suppliers to get in touch by letter and offer cheaper easy-to-access deals based on their actual energy use.
However the CMA said customers can choose to opt out of this service though if they don’t want to be contacted.
Revitalising competition
The CMA will also introduce a range of measures focused on revitalising competition and drive down the costs of energy for households.
This includes reforming the system for measuring and charging energy that distorts competition between suppliers and reducing the cost of transmitting electricity.
It will also reform some parts of the Retail Market Review (RMR) in particular the four tariff limit and restrictions on the offer of discounts. The report said that certain aspects of the rules introduced in 2014 have reduced competition and innovation in designing tariffs to meet customer needs.The CMA says going forward suppliers will be allowed to offer a wider range deals and allow price comparison websites to negotiate exclusive tariffs.
Price comparison websites will also play a more active role in helping households find the best offers and given access to meter data to help people search for deals.
Ofgem will also be given more influence over the working of the market, to bring an end to the influence of big energy companies over decisions that impact competition and customers.
It will get more powers to help it scrutinise the performance of the market and suppliers as well as the impact of policy.
When will all this happen?
The changes will be set in motion by a combination of CMA orders and recommendations to Ofgem and the Government.
It is estimated that energy firms will pay £80 million in order to enact them.
The CMA will publish a timetable setting out how the solutions will be implemented over the next six months.
Roger Witcomb, chairman of the energy market investigation, said: Competition is working well for some customers in this market – but nowhere near enough of them. Our measures will help more customers get a better deal and put in place a modernised energy market equipped for the future.
“We believe our measures alongside other future developments will mean energy customers see real improvements over the years ahead.”
Response
Responding to the publication of the Competition and Markets Authority’s (CMA) final report, Dermot Nolan, chief executive of Ofgem, said: “The CMA’s final report marks the end of its two year investigation and is an important milestone towards making the market more competitive and fairer.
“The CMA’s remedies, combined with smart meters and faster switching, clear the way to secure a new and better deal for all consumers, especially the vulnerable.
“Ofgem urges the industry to get behind the entire package of remedies and to work with us to deliver an energy market that works for both active and disengaged customers as quickly and effectively as possible.”
Alex Neill, Which? Director of Policy and Campaigns, said: “Today’s report confirms what we have always known – that the energy market just simply isn’t working for consumers. With the cost to consumers of an uncompetitive market standing at £1.4 billion, it’s high time for energy companies to accept they need to change.
“After a two-year investigation, we need to see swift action by suppliers and Ofgem to set out how they will implement the review’s recommendations. If the energy companies fail to show they can treat their customers fairly, and deliver better service and competitive prices, the regulator must be ready to come down on them like a ton of bricks.”
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