Energy regulator aims to end default tariffs to protect customers

The energy regulator has urged household suppliers to help move customers onto better value deals as the Government seeks a cap on default tariffs.

Ofgem announced a series of measures it wants to implement aimed at protecting bill-payers from the highest charges and piling more pressure on energy firms to scrap, of their own accord, controversial standard variable tariffs (SVTs).

These are the default prices for electricity and gas that are often the most expensive and were described by Prime Minister Theresa May as a "rip-off".

Half of UK households are still on SVTs despite a pick-up in switching.

The watchdog said it would need legislation in place to enforce a cap on default tariffs and its intervention was seen as strong evidence that no new law will be in place for this winter.

In the meantime it said it was introducing new rules "to allow suppliers to roll customers coming to the end of their contracts onto another fixed deal instead of a poor value standard variable tariff".

It warned companies it would be monitoring the market carefully to ensure new deals did not become a vehicle to penalise customers who fail to switch.

In support of efforts to bolster switching, Ofgem said it was also proposing that consumers receive automatic
compensation if their switch goes wrong.

The regulator's headline measure was that it wanted to extend price protection to one million vulnerable customers on the Warm Home Discount this winter by February - saving them an average £120 - through its safeguard tariff.

Dermot Nolan, chief executive of Ofgem, said: "Ofgem shares the Government's concern that the energy market is not working for all consumers and is determined to reduce the detriment suffered by those overpaying for their energy, particularly those who are vulnerable.

"The Government's proposed bill to provide price protection to those who remain on poor value default deals, such as the standard variable tariff, will give these households peace of mind about the price they pay for their energy.

"In the meantime, we expect suppliers to do more to get customers on poor value default tariffs onto better deals."

The draft bill is expected to be published on Thursday.

Confirmation that the PM was targeting SVTs was met with dismay by some major energy firms and the country's largest business lobby group, the CBI.

British Gas owner Centrica (Frankfurt: A0DK6K - news) and fellow 'big six' supplier SSE (LSE: SSE.L - news) saw their share values come under further pressure.

Centrica's stock - down 25% in the year to date - fell a further 1% in early trading on the FTSE 100 on Wednesday but recovered to finish the day just 0.3% lower.

The company said in response to Ofgem's announcement: "There are more than 50 energy suppliers, and intense competition in the market and we agree more can be done to improve the functioning of the market, particularly regarding default tariffs and the nature of the SVT.

"We therefore welcome Ofgem's intention to change the default mechanism at the end of fixed contracts, and to permit different default tariffs other than the SVT.

Centrica has been calling for changes to the regulations regarding the SVT for over 2 years, and for a levelling of the playing field so that more suppliers are obliged to provide the "Warm Home Discount" and pay for the "Energy Company Obligation.

"Ofgem's statement this morning and forthcoming short consultation is a step in the right direction. We now await details of the Government's draft Bill and remain committed to acting to improve the functioning of the market for our customers.