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Energy loyalty penalty: Crackdown sees tariffs offered to all

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16/02/2022
The energy regulator will require suppliers to make all their tariffs available to both new and existing customers amid the ongoing cost crisis.

Given the current wholesale market volatility, the energy regulator Ofgem announced it will introduce two temporary measures to help both customers and suppliers.

The first is a crackdown on the loyalty penalty which sees new customers offered the best prices. Ofgem will require suppliers to make all tariffs available to new and existing customers from 14 April 2022.

Ofgem stated: “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 second is a requirement for suppliers to pay a ‘market stabilisation charge’ when acquiring new customers, again with effect from 14 April 2022.

Ofgem explained this charge will ensure that energy companies “who have done the right thing” by purchasing energy for their customers in advance are better able to recover more of their costs if there is a sharp fall in wholesale prices.

It will be payable by suppliers gaining new customers to suppliers losing them and will only apply if wholesale prices fall significantly below the level used to set the price cap from April.

The measures aim to strike a balance between the cost pressures facing both customers and suppliers.

The Ofgem report read: “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 so as to attract the investment necessary to support the achievement of net zero. As such, we believe that they are necessary and proportionate and in consumers’ interests. We expect suppliers to work constructively with Ofgem to implement these temporary measures.”

The measures are temporary with Ofgem expecting them to “fall away this Autumn as soon as the risks they are protecting consumers from are adequately addressed by reforms to the price cap”. But they can be extended “if significant risks remain”, Ofgem added.

It comes off the back of soaring wholesale prices which mean the energy price cap will rise from £1,277 to £1,971 a year from April. At the time of the announcement, Ofgem said it is working to “stabilise the market”, with proposals to review the energy price cap four times a year, rather than the current two.

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