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Energy customers on standard tariffs to be contacted by rival firms

Paloma Kubiak
Written By:
Paloma Kubiak

Millions of households could see their energy bills cut or capped by the competition watchdog after an investigation found consumers overpay by £1.4bn a year.

The Competition and Markets Authority (CMA) has today published its final report into the supply of energy in Great Britain following its “most comprehensive investigation into the market since privatisation”.

During the two year investigation, it found 70% of customers of the ‘big six’ suppliers – British Gas, EDF, E.on, Npower, Scottish Power and SSE – are still on an expensive default standard variable tariff.

By switching to a better deal, they could potentially save over £300, but instead the CMA found that customers have been overpaying by £1.4bn a year, showing that competition in the market isn’t working.

As a result, suppliers will be ordered to give the energy regulator Ofgem details of all customers who’ve been on their default tariff for more than three years.

The data will be put on a secure database to allow rival suppliers to contact customers by letter and offer cheaper and easy-to-access deals based on their actual energy usage.

However, for the four million customers on a prepayment meter, the options to switch are far more limited and so the CMA said it would bring in a ‘transitional price cap’ to reduce bills by around £300m a year.

It found that for these customers, bills are between £260 and £320 a year more expensive than for customers paying by direct debit.

The CMA added that the price cap will remain in place until the introduction of smart meters removes the limitations on such customers accessing better deals.

In total, the CMA says it will introduce over 30 measures to increase competition, and this includes a reform of outdated systems for measuring and charging energy, reducing the cost of transmitting electricity and to support low carbon generation at the lowest cost to customers.

Further, price comparison websites will be enabled to play a more active role in helping customers find the best offer and they will be given access to meter data to allow customers to search instantly for deals.

Keep suppliers on their toes

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.

“With far too many customers paying hundreds of pounds more than they need to, they will be alerted to the better value deals that are out there and it will be easier for them to identify a good deal and switch to it.

“More active customers will not only save themselves money but keep suppliers on their toes, addressing many of the problems that we’ve identified. There are promising signs in this market with smaller suppliers getting more of a foothold and making it easier for customers to get involved will push things more quickly in the right direction.”

The CMA will shortly publish a timetable setting out the implementation process over the next six months.