Table of Contents
- Energy bills remain high partly due to Ofgem rules introduced during 2022
- These rules mean companies cannot weaken rivals in new energy deals.
- Now the regulator wants to remove these restrictions to reduce consumers’ bills.
Cheaper energy deals could return this winter as regulator Ofgem plans to scrap rules propping up exorbitant prices.
At the moment, part of the reason gas and electricity bills average £1,690 a year is that Ofgem rules mean energy companies cannot offer cheaper deals to new customers unless they also offer them to new customers. the existing ones.
Ofgem introduced this “ban on acquisition-only tariffs”, or BAT, in October 2022 to prevent energy companies from using their classic tactic of undercutting each other to attract new customers.
Now the energy regulator wants to lift the ban, as This is Money first revealed.
Piling up: UK households have been dealing with sky-high energy bills since the end of 2021
Ofgem is consulting on plans to end the ban by October 1, ahead of its natural end point in March 2025.
The regulator said that “maintaining the BAT is no longer necessary for market stability and is likely to generate net costs for consumers through increased prices.”
Ofgem wants to end BAT on October 1 unless it discovers a very good reason to keep it.
What effect does the ban on procurement-only tariffs have?
The goal is to prevent energy companies from offering cheap fixed-rate deals that could become unsustainable if volatile energy prices suddenly change.
A sudden shift in prices meant dozens of energy companies collapsed in late 2021 as they were forced to sell power to customers for less than they could buy it.
Ofgem wanted to prevent more energy companies from collapsing, as at one point there was a very real risk of the UK being left without any energy companies.
But the downside was that energy prices remained high for customers.
The ban led energy companies to be more conservative with their prices, although some critics have accused them of profiteering.
As a result, less than 3 per cent of fixed-rate energy deals work out cheaper than Ofgem’s maximum price, and many come with high exit fees for those who want to switch.
What does this mean for energy bills?
In theory, removing the ban should give energy companies the incentive to strike genuinely competitive deals, rather than those hovering around Ofgem’s price cap level.
The energy price cap is set by regulator Ofgem and limits how much companies can charge households in variable tariff energy deals that pay by direct debit, for both gas and electricity units and standing charges.
Cornwall Insight analysts predict the average capped bill price will fall to £1,559.61 a year in July.
It is then forecast to rise to £1,636.44 in October and rise slightly again to £1,634.20 in January 2025.
However, Ofgem has warned that scrapping the BAT does not mean the UK will see a return to the super-cheap energy deals that were common before the end of 2021.
The regulator said its other rules, including one on how much cash energy companies must keep in reserve, “will have
“the effect of preventing a return to unsustainable price competition and excessive risk-taking.”
Richard Neudegg, head of regulation at Uswitch.com, said: ‘Getting rid of BAT in October bodes well for households looking for cheaper energy bills.
‘With Ofgem’s final decision due in July, this move is a no-brainer to improve the chances of decent fixed deals in time for winter.
‘Forcing suppliers to offer the same energy deals to new and existing customers has meant that suppliers have been encouraged to give up on offering cheap deals.
“But with the price cap changing every three months, consumers desperately need affordable repair options that give them more security on their bills.”