Ofgem has decided to merge its prepayment meter (PPM) and default tariff price caps into one mechanism before the former expires at the end of this year.
Although they would still have been covered by the default tariff at the same level, the regulator has announced plans to apply an “uplift” for prepayment customers to reflect the additional operating costs they create for suppliers.
For the next two price cap periods – 1 October 2020 to 31 March 2021 and 1 April 2021 to 30 September 2021 – this uplift will be used to top up the price cap for PPM customers to the same level as it would have been set using the current methodology.
Ofgem noted that, unlike the separate PPM cap, this will also apply to customers will a smart meter. It said the rollout of smart meters should gradually reduce the additional costs associated with PPM customers and to reflect this will also apply a further adjustment to the default tariff cap for those with smart meters called the Smart Metering Net Cost Change (SMNCC).
For the time, the regulator has decided to set this to zero whilst it gathers more evidence on impact of smart metering on costs.
Elsewhere, the regulator has decided to apply an adjustment to the default tariff price cap for the next period following a High Court ruling in November last year.
The case, brought by Centrica, disputed the way the regulator calculated wholesale costs for the first three months of the cap between January and March 2019.
Ofgem has now reconsidered the matter as instructed by the court and concluded that the price cap during the first period was too low. It has therefore decided to adjust the price cap for the next period to allow suppliers to charge gas and electricity customers with benchmark consumption an additional £7.98 and £2.64 respectively.
In annualised terms, this will increase the published level of the gas and electricity price caps by £10.71 and £4.56.
Ofgem made the announcement ahead of its update on the price cap level this Friday (7 August).