What is the price cap?
On 1 April 2017, the amount of money suppliers can charge a domestic prepayment meter (PPM) customer per unit of energy became subject to a safeguard tariff (or ‘price cap’). On the 2 February 2018, Ofgem extended this price protection to a further one million vulnerable customers receiving the Warm Home Discount.
Suppliers can charge less than the set level of the safeguard tariff, but not more. It doesn’t cap the total cost of a bill. That’s because the amount customers pay also depends on how much gas or electricity they’ve used.
The prepayment safeguard tariff is one of the remedies introduced following the Competition and Markets Authority’s (CMA) investigation into the energy markets. It's temporary, and is due to expire at the end of 2020 when the smart meter rollout is expected to complete. It covers all domestic prepayment customers (except those with a fully interoperable smart meter).
We are consulting on further price protections, for both vulnerable customers and for all customers on standard variable and default tariffs. You can find further details on our Retail Price Regulation page.
Safeguard tariff levels Ofgem is responsible for administering the safeguard tariff. The level of the cap will be updated on 1 April and 1 October each year.
At the beginning of every February and August, we publish the details of the cap for the forthcoming charge restriction period. We publish separate levels of the cap for each region and meter type, calculated using a methodology designed by the CMA. This methodology sets the level of the cap based on calculations of: wholesale costs, network costs, policy costs, operating costs, and costs specifically associated with prepayment meters. It also includes a degree of ‘headroom’, which is designed to allow suppliers to offer competitive deals underneath the cap.
The update on 1 April 2018 will increase the dual fuel cap by £57 from its previous level. This is at current typical domestic consumption levels, which are different from the CMA model consumption levels. This increase is due to increases in wholesale costs and increases in the costs of complying with government policy on social and environmental schemes.Read Full Article