Ofgem acts to cut 1 million vulnerable households’ bills
Press release
- Publication date
- Industry sector
- Supply and Retail Market
- 5 million protected after Ofgem extends safeguard tariff to almost 1 million vulnerable customers
- People on worst deals are better off under safeguard tariff and protected from unjustified price rises
- Level of safeguard tariff to rise in April due to higher energy costs
Almost 1 million vulnerable households on poor value deals will make big savings on their energy bills from this month after Ofgem extended the prepayment safeguard tariff.
These customers will initially make annualised savings of around £115 on average because suppliers have to cut their prices to below the level of the safeguard tariff cap.
These savings will fall to around £66 a year from April when the level of the safeguard tariff rises due to higher energy costs.
The safeguard tariff stops suppliers from charging customers too much and ensures any price increase is justified by rises in underlying costs.
In April last year, Ofgem introduced the safeguard tariff for over 4 million prepayment customers, who also find it difficult to get a better deal and are more likely to be vulnerable.
After Ofgem extended the safeguard tariff to almost 1 million vulnerable customers last week on February 2, over 5 million households are now protected.
Ofgem adjusts the level of the cap twice a year based on a pre-defined methodology set by the Competition and Markets Authority to reflect the estimated underlying costs of supplying energy2.
From April 1, the level of the safeguard tariff will rise by approximately £57 a year from £1,031 to £1,089 for a dual fuel customer who uses a typical amount of energy3.
The increase in the safeguard tariff is mainly due to higher wholesale energy costs and policy costs to support low carbon forms of electricity generation4.
Customers are still better off under the safeguard tariff which stops suppliers from charging customers too much.
When Ofgem introduced the safeguard tariff for prepayment meter customers in April last year, their bills fell by around £60.
While higher energy costs will push up the level of the safeguard tariff in April this year, they will still pay less than they would be if they were not protected.
For example, their bills, which used to be amongst the highest in the market, are still expected to be around £35 lower than the current standard variable tariff paid by direct debit customers.
Dermot Nolan, chief executive of Ofgem, said: “Protecting vulnerable customers is a priority for Ofgem. That’s why we have extended the prepayment safeguard tariff to almost 1 million vulnerable households, which will help deliver a fairer, smarter and more competitive market for all consumers.
"Even when energy costs rise, people on the worst deals are better off under the safeguard tariff as they can be sure that they are not overpaying for their energy and any rise is justified.
“Ofgem is working with the Government to protect all customers on poor value default deals, such as standard variable tariffs, from being charged too much for their energy as soon as possible. Our aim is to protect those who do not switch, while making it easier for those who do to get a better deal.”
Notes to editors
1. See Ofgem’s annual State of the Market report, last published in October.
2. What is a safeguard tariff?
A safeguard tariff caps protects consumers from overpaying for their energy. Suppliers cannot charge more than the level of the tariff but can price below it. The methodology used to determine the level of the safeguard tariff has been set by the Competition and Markets Authority (CMA). Ofgem is responsible for administering the safeguard tariff and publishing the levels each year in February and August. To calculate the level, we take the benchmark calculated by the CMA, and update this value using a number of different indices to reflect broad trends in costs (this includes an index of wholesale prices, forecasts of environmental levies, and inflation). An allowance for network charges is also calculated, based on network companies’ published charges, which varies by region to take account of the different costs of supplying electricity and gas through pipes and wires around the country. Finally, the safeguard tariff includes a degree of ‘headroom’, included to help ensure that there is room for suppliers to price below the cap. Because the safeguard tariff caps the price of each unit of energy used, not overall bills, the total amount prepayment customers pay per month will continue to vary based on their consumption.
3. The table below shows the current levels of the safeguard tariff, and the updated levels which will apply from April 1. They are based on simple averages across GB regions. The values shown include VAT, and are expressed for the current typical domestic consumption values of 3,100kWh of electricity, 12,000kWh of gas, and 4,200kWh of electricity for Economy 7.
The TDCVs were updated in 2017 to reflect reducing average consumption due to increasing efficiency. Previous publications on the levels of the PPM safeguard tariff used the previous TDCV values, and are therefore not exactly the same as current values.
For full details of the level of the safeguard tariff in each region and for each fuel see safeguard tariff level: 1 April 2018 to 30 September 2018. Note that the values in this document – which is required by suppliers to understand what tariffs are allowed under the cap – are not directly comparable with the above, as they exclude VAT, and are expressed for levels of consumption different to those used above.
4. Breakdown of changes in supplier costs used to calculate safeguard tariff:
5. For more background on the safeguard tariff.
6. Read Dermot Nolan’s new blog on why Ofgem has extended the prepayment safeguard tariff to vulnerable customers.
Further information for media
For further information, contact:
Tim Webb: 0207 901 7179
Media out of hours mobile: 07766 511470
About Ofgem
Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.
For facts, figures and information about Ofgem’s work, see Energy facts and figures or visit the Ofgem Data Portal.