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The CMA is taking the next step towards the introduction of a price cap for approximately 4 million households on prepayment meters.

In its final report published in June following a 2-year investigation into the energy market, the Competition and Markets Authority (CMA) said that it would introduce a price cap for prepayment customers from April next year. This will help keep costs down for some of the most vulnerable households in Great Britain and is expected to reduce their bills by around £300 million a year.

Prepayment customers currently face bills that can be hundreds of pounds a year more expensive than for those on standard credit meters. The CMA’s investigation found that the cheapest available prepayment deals were £260 to £320 a year more expensive than those available for direct debit households.

The price cap will remain in place until the end of 2020 when the smart meter roll-out – combined with other changes imposed on the industry by the CMA – is expected to tackle issues that prevent such customers accessing the better deals available to others.

Roger Witcomb, Chairman of the energy market investigation, 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 CMA is now consulting on a draft order 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 so that the price cap can come into force in April next year. After its introduction Ofgem will monitor and update the price cap.

The CMA is also consulting on a draft order which will introduce a locational pricing system for transmission losses (PDF, 339KB, 1 page) aimed at reducing the amount of electricity lost on the transmission network. This will help in reducing the overall cost to customers.

The CMA’s report detailed over 30 measures, including recommendations to Ofgem and government, which are to be brought in to drive down costs by increasing competition between suppliers and helping more customers switch to better deals. They will also include technical and regulatory changes to modernise the market and ensure it works in consumers’ interests.

The CMA will be consulting on more of these measures later this month.

The draft orders and all other information published in relation to the investigation are available on the energy market investigation case page. A short overview of the investigation is also available, along with a range of other materials for consumers and businesses explaining the investigation and its findings.

Responses on the two draft orders are invited by 11 November 2016 to david.fowlis@cma.gsi.gov.uk and energymarket@cma.gsi.gov.uk.

Notes for editors

1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission and the competition and certain consumer functions of the Office of Fair Trading under the Enterprise Act 2002, as amended by the Enterprise and Regulatory Reform Act 2013.
2. The members of the energy market investigation group are: Roger Witcomb (Chairman), Lesley Ainsworth, Martin Cave, Malcolm Nicholson and Robert Spedding. The appointed investigation group act as the decision-makers during the market investigation and remedies implementation phases, and were chosen from the CMA’s panel members, who come from a variety of backgrounds, including economics, law, accountancy and business.
3. For more information on the CMA see our homepage or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on markets cases.
4. Enquiries should be directed to Rory Taylor (rory.taylor@cma.gsi.gov.uk, 020 3738 6798).