Around four million households on pre-payment meters will see their power bills slashed and providers will have to share customer data to allow rivals to offer them better deals under proposals announced by the energy watchdog.
The Competition and Markets Authority (CMA) said British households could have been overpaying by around £1.7 billion a year and added that the Big Six providers have been taking existing customers – 70% of whom are stuck on standard variable rate deals – for granted.
In its long-awaited report, the CMA said it wants to set a temporary price cap for low income and vulnerable customers who have pre-payment meters, and plans to launch an Ofgem-controlled database allowing rival suppliers to offer those on standard variable rates (SVRs) for three years or more better deals.
The CMA said too many customers were still on the most expensive default standard variable tariffs and could save more than #300 on average by switching.
Roger Witcomb, chairman of the CMA’s energy market investigation, said: “We have found that the six largest suppliers have learned to take many of their existing domestic customers – some 70% of whom are on ’default’ standard variable tariffs – for granted, not just over prices, but with their service and quality.”
He said the CMA’s report sets out a range of “bold, innovative” measures to improve competition in the energy market.
Those on pre-payment meters will see £300 million slashed off their bills in total each year – or around £80 to £90 each on average – under the regulator’s plans to protect them with a price cap until 2020.
Mr Witcomb said: “Energy is both an essential and expensive item for many of these four million households, whose cheapest tariffs are around £300 more expensive than for other customers.”
He added the price cap will remain in place until 2020, by which time “they too will be able to benefit from our measures, and from other future developments like the roll-out of smart meters”.
One of the more controversial is the launch of a new customer database of so-called “disengaged customers”, opening them up to direct marketing by competing energy suppliers.
The CMA said this will be subject to “strict safeguards so that customers can opt out at any time and to ensure that communication meets strictly controlled criteria”.
Other plans include giving price comparison websites access to meter numbers and allowing them to negotiate exclusive deals with suppliers.
These sites would have to set out clearly how they cover the market and when deals are sponsored, according to the CMA.
It also confirmed it aims to ditch rules introduced by Ofgem restricting suppliers to offering just four tariffs, saying they have ended up reducing competition.
The CMA wants the 700,000 households on non-Economy 7 restricted meters to be allowed to switch to cheaper single-rate tariffs without needing to have their meters replaced.
The authority added that Ofgem should be given greater independence, reporting powers and the “ability to drive forward changes”.
Shadow energy and climate change secretary Lisa Nandy said energy companies are still being “let off the hook”.
She said: “Right now it’s clear to nobody why some families pay hundreds of pounds more than others for their energy and these proposals won’t fix this.
“While a safeguard tariff for customers stuck on expensive pre-pay meters is welcome and will protect some households, we will need to go much further to make sure bills are fair and transparent for everybody else too.”
Smaller independent providers broadly welcomed the CMA’s proposals, which follow a two-year investigation into the UK energy market.
Ian McCaig, chief executive of First Utility, the largest independent energy provider, said: “We’re pleased with the measure to open up customer databases for the most disengaged segment of the market – those who have been on a standard variable tariff for more than three years.
“It is vital however that this is properly governed to avoid customers being bombarded with information from more than 30 suppliers, which could further damage trust.”
Dermot Nolan, chief executive of Ofgem, said the CMA’s proposals should help deliver a “better deal for consumers” and make the market more competitive, especially for the vulnerable.
He added: “We will now work closely with the CMA on how these proposed remedies should be implemented to ensure that consumers get the full benefits.”
The latest proposals follow a report last July from the CMA which found “widespread consumer disengagement”.
But the CMA has stopped short of the most radical proposals, such as a break-up of the Big Six.
It chose not to recommend last summer that they should be dismantled to separate power generation and supply, saying that competition in wholesale markets was working well.
Proposals for a wide-ranging price cap first mooted last year have been rowed back after widespread lobbying from the energy sector and criticisms that the move could dissuade customers from switching.
The energy sector has been in the spotlight in recent weeks after the latest round of bill cuts were condemned for being too late and too little.
The Big Six providers announced gas price reductions, but most were only around 5% and do not come into effect until this month, while none have cut electricity tariffs.
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