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17 Feb 2022

Cheapest energy deals to be made available to all customers

Ofgem bans the 'loyalty penalty' that lets energy suppliers offer better deals exclusively to new customers
Gas hobs

Ofgem has introduced a temporary requirement for energy providers to offer their existing customers the same deals as incoming new customers.

The energy regulator has announced plans to end the practice known as 'loyalty penalty' in the energy market.

Gas and electricity firms will be banned from only offering their cheapest deals to new customers.

The crackdown is designed to stop the practice of attracting new customers with better deals than those offered to existing customers, effectively forcing customers to continually switch providers for the cheapest tariffs.

In practice though, it won't mean much change for households until energy suppliers start to introduce cheaper tariffs to the market again - and no one is sure when that will be.

Help to beat the rising cost of living with ourmoney-saving tips

Energy providers banned from applying a 'loyalty penalty'

Ofgem is introducing a requirement for suppliers to offer all their existing customers the same deals that new customers can sign up to.

The energy regulator emphasised that cheaper energy deals are only possible because existing customers, particularly those who do not shop around, are paying higher prices for their gas and electricity. It said scrapping the 'loyalty penalty' will protect consumers by ensuring everyone can access all tariffs available in the market. This would 'enable more consumers to benefit when wholesale prices fall.'

It is only proposed as a temporary measure. Ofgem added that it will monitor how effective the rule change is before considering whether to make it a permanent change.

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Additional protection for hedging energy companies

The watchdog has also introduced a requirement that if an energy company takes a customer from one of its rivals, it will have to pay a fee to the rival should wholesale prices fall. This is to protect energy firms that buy the energy they think their households will use in the future in advance.

This practice - known as hedging - protects companies from significant changes within short periods in energy market. It comes as dozens of gas and electricity suppliers have failed in recent months.

Ofgem estimates that over two dozen companies still trading on the energy market would have gone bust since the energy crisis began in September 2021 had they not hedged properly.

It said this second rule will make sure companies 'do not take disproportionate financial risks' and that 'suppliers who have done the right thing by purchasing energy in advance for their customers aren't penalised, whilst protecting the ability of switching consumers to benefit from cheaper tariffs when prices fall.'

The shake-up comes as gas and electricity prices are set to climb by 54% or £693 for 22 million households from April 2022 due to the energy price cap rising from £1,277 to £1,971 per year for people on or default tariffs. The rise comes as household incomes are already being squeezed by rising inflation and grocery prices and national insurance rates set to escalate as well.

Find out more about energy bills rising in April 2022.

Accessing help paying your energy bills

Earlier this month, Chancellor Rishi Sunak announced around £9bn worth of support available for anyone struggling to make energy payments in light of climbing prices.

Find out more: £350 boost to help with the cost of living - are you eligible?

  • If you're worried about increasing energy payments, there are some steps you can take. These include:
  • If you are able to, opt for paperless energy bills and manage your account online (as some firms charge extra for paper billing).
  • If you can, pay by direct debit. You can be charged more - even if you're protected by the price cap - for paying once you receive a bill or by prepayment.
  • Get a smart meter installed or send regular meter readings to make sure your bills are accurate. Find out how to get a smart meter.
  • Replace light bulbs with energy-saving alternatives, as they're much cheaper to run. Find out if you qualify to get free insulation.
  • Check if you're eligible for the Warm Home Discount, worth £140 a year.
  • Make DIY changes around your home to make sure your energy use is as efficient as possible. Read more on how to make your home more energy efficient.
  • Read our 10 ways to save money on your energy bills.

In addition, you can talk to your energy supplier if you can't afford to pay your bills. They have to treat customers fairly and agree a payment plan with you that you can manage. Options can include a payment break or reduction, additional time to pay, access to hardship funds, and being added to its priority services register (if you're in a vulnerable situation).

Many companies offer emergency credit and friendly credit for customers with prepayment meters too.

Read more on: what to do if you're struggling to pay your energy bill

Adam French, Which? Consumer Rights Expert, said:

'The sheer scale of the energy price cap increase in April will be causing real concern for households across the UK who are already struggling with the rising cost of living.

'Ofgem's plan to crack down on the loyalty penalty for long-standing customers could be welcome news but its impact will depend on whether suppliers are able to offer cheaper deals in the coming months.

'For those on a fixed-rate tariff, it's currently best to stay put as you are unlikely to find a cheaper deal. However, if you're on an out-of-contract tariff, now that the price cap has been announced, it's worth keeping an eye out in case better deals emerge.