Hey everyone,
For those of you wanting a quick update, please see the video I posted on TikTok below:
For those that enjoy written updates, here it is.
Refresher
Back in March this year, Ofgem closed a consultation on introducing a second price cap. The second cap would have either zero, or very low standing charges, but would have increased unit rates. Ofgem made it clear that there were not looking to reduce the cost of the price cap for consumers, instead they were wanting to offer addtional choices for consumers, but they were intent on ensuring that suppliers would recover the same amount of moeny from the second price cap as they do on the current one.
In this consultation, they offered a variety of suggestions on how this second tariff could work, including a rising block tariff, a falling block tariff and a fixed rate increase tariff (the two block tariffs seemed convoluted and confusing, I recommended they don’t go down those routes).
They also floated the idea of making the second price cap a “lock-in” tariff, meaning that consumers that opt for the second price cap could then not move back to the main price cap within 12 months. I understand the logic of this, they are worried everyone would move to the zero-standing charge tariff in the summer months when usage is low, and then move back to the original price cap during the winter months when usage is high. The result of this would mean lower bills for customers, and therefore suppliers missing out on revenue, which Ofgem isn’t intending. The thing I disagreed with most was the wording “lock-in”. This gives the implication that customers cannot switch away from the tariff to cheaper fixed rate tariffs, which isn’t Ofgem’s intention. The lock-in is actually a lock-out, they just won’t allow customers to switch back to the original price cap, but all other tariffs in the market are fair game, I put this feedback in my response to the consultation.
Ofgem’s Update
So on Thursday 24 July, Ofgem posted an update on the consultation. Effectively, they’re not scrapping their current plans, but they are proposing to put in place an interim new rule. They are looking at forcing suppliers to offer at least one zero or low standing charge fixed rate tariff.
Ofgem hope to have this rule in place by January 2026, with consultations expected to come out in the Autumn months. At the moment, we have no information for how this new rule wil be structured, but I’m expecting that Ofgem will allow suppliers to set their unit rates with no maximum limit, they’ll claim that it is a free-market decision and therefore Ofgem won’t get involved. The likely result of this is that we’ll tariffs with £0 standing charges but with unit rates that are unbelievably high! The end result will be that no one will take up the £0 standing charge tariffs because it won’t benefit anyone, and Ofgem will have to consult again next year on additional rules or different approaches to increasing options for how to increase options for consumers.
The full update can be read here.
Interestingly, Ofgem received over 10,000 responses to this consultation, most of which stated that they want to see Ofgem remove or significantly reduce standing charges. These were primarily from the general public, emailing in and telling Ofgemt heir thoughts!
Hopefully, I’ll be back with more updates on this in a month or so, when Ofgem start releasing consultations on their new proposals, until then please subscribe to The Regulator Guy’s website and follow me on my new, informative TikTok channel.
Thanks all!
Richard Winstone
The Regulator Guy.
