One million more vulnerable energy customers will see their bills drop by an average of £120 from this winter under an extension of a prepayment safeguard tariff.
Ofgem is to extend the prepayment meter safeguard to households receiving the Warm Home Discount.
The regulator has also announced it will work on extending protection to at least another two million vulnerable households for next winter once the timing of the Government’s price cap is confirmed.
A British Gas meter (Peter Byrne/PA)
Safeguard tariffs – also called price caps – limit how much a supplier can charge a customer per unit of energy. Suppliers can charge less than the safeguard tariff but no more.
There are about six million prepayment meters in households across the UK and they work in a similar way to a pay-as-you-go mobile phone, with customers paying for energy up front instead of by quarterly bill or monthly direct debit. If there is no credit in the meter, there is no energy supply to the home.
While a prepayment meter can help a customer budget their energy use, especially if they have fallen into debt with their supplier, it is usually one of the most expensive ways to pay for gas and electricity.
Ofgem introduced a safeguard tariff for more than four million households on prepayment meters in April, which initially saved many around £80 a year.
Ofgem’s new rule requires suppliers rolling customers on to fixed default tariffs to ensure they are not more expensive than the standard variable rate.
Citizens Advice welcomed Ofgem’s announcement, saying it should serve as a warning to energy firms that they can “no longer get away with ripping off their poorest customers”.
Citizens Advice’s analysis found that over the last year dual fuel bills for people on the standard variable tariff rose by £89 – three times the rate of inflation.
The charity’s chief executive, Gillian Guy, said: “We have long been calling for a safeguard tariff to cap bills for the poorest pensioners and families as a first step, alongside action to protect the millions of other loyal customers paying over the odds on default tariffs.
“It is right that whilst the Government works to tackle the cost of default tariffs through legislation, Ofgem is taking action to make energy bills more affordable for the poorest loyal customers – and looking to extend the safeguard tariff to more of the worst off as soon as possible.”