Ofgem has ruled that suppliers will be barred from offering cheaper, exclusive tariffs to lure new customers on a temporary basis, as part of its twin-pronged package designed to stabilise the energy market.
The regulator has also introduced a new Market Stabilisation Charge (MSC) so that suppliers which have purchased energy for their customers in advance are better able to recover more of their costs if there is a “sharp fall” in wholesale prices.
Ofgem has announced that suppliers will be obliged temporarily to offer the same tariffs to both new and existing customers
The regulator has said the measure, which will be in place until at least September, is designed to prohibit suppliers from offering new tariffs which cannot be accessed by existing customers
By making it harder for suppliers to undercut one another’s tariffs, the move will reduce the risk of “unsustainable competition” between suppliers that increases the risk of “disorderly” exits from the market.
Ofgem said the measure is in line with recent moves by the Financial Conduct Authority in the insurance market, where renewal quotes must not be higher than those on offer to new customers.
The regulator acknowledged this measure could lead in the short term to suppliers pricing their acquisition tariffs higher than otherwise would be the case but that the benefits across the market will outweigh the short-term reduction in savings for switching customers.
It said: “This will help to stabilise the market in the short term by acting as a break on unsustainable price competition when cheaper tariffs return and customer switching picks up again.
“It will also limit price discrimination by suppliers and help to improve consumer trust and confidence in the retail market after the challenges of this winter, improving access to cheaper tariffs for consumers who may be less willing or able to switch supplier, particularly those in vulnerable situations.”
The MSC, which will be paid by suppliers gaining new customers to suppliers losing them, will only be triggered if wholesale prices fall “significantly below” the level used to set the price cap from April.
The paper said: “Taken together, these measures will help suppliers to better manage, on behalf of consumers, the risks posed by severe energy price volatility and so mitigate the potential costs to consumers if wholesale prices fall significantly. In this way, they will reduce the potential for further significant supplier failures – with the associated disruption and costs for consumers – and promote investor confidence in the retail energy market.”
Both measures will take effect from 14 April.
Ofgem has also decided not to press ahead with allowing suppliers to temporarily introduce exit fees for domestic customers on Standard Variable Tariffs (SVT’s) other than deemed contracts.
Simon Oscroft, co-founder of So Energy, welcomed Ofgem’s move, adding: “For years we have been calling on Ofgem to do this, long before the current wholesale spike, for two reasons. Firstly, it will encourage more sustainable pricing and in turn improve supplier resilience by preventing suppliers from offering loss leading exclusive tariffs to new customers. Secondly, it will encourage fairer pricing by ensuring loyal customers are not excluded from accessing their own suppliers’ best deals.
“This measure will make life better for all customers, so rather than have a time limit we call on Ofgem to implement this measure permanently – which they have committed to consider at the end of the six-month period. This will help build a more resilient and fairer energy market as we begin to emerge from this crisis.”