The cap on energy prices will be cut by £75 from October, lowering the bills of customers who are on standard and default tariffs that are currently priced at the level of the cap.
But although bills will reduce, the price cap will still allow companies to charge around 11 million customers more than they were paying on 1 January 2019.
The price cap initially limited the amount that energy firms could charge customers on standard variable or default tariffs to £1,137 per year, on average, presuming they used a medium amount of energy.
But the cap was increased to £1,254 on 1 April 2019 and will reduce again to £1,179 later this year. So, if you're on an affected tariff, don't be fooled into thinking that you're on a good deal. You could still be paying more than you were 10 months previously.
Switching energy firm is still the best way to save money. Move to the cheapest deal on the market from a tariff charging the level of the price cap, and you could save £408 per year.
The price cap cut means that companies must reduce their prices for customers on their standard or default deals to the new level.
You're likely to be on a standard or default deal if you have never switched energy supplier or tariff, or took no action when your last fixed tariff ended.
With many firms, standard or default deals are not their best-value offers. Most of the biggest firms charge at the level of the price cap for their standard or default tariff.
The price cap cut will save a household that uses a medium amount of gas and electricity around £75 per year. Your exact saving will depend on how much energy you use and by how much - if at all - your energy company has to reduce its prices.
If you're on a fixed energy deal, the price cap doesn't apply to you. It's still worth comparing energy prices, though, as not all fixed deals are cheap.
Energy firms only have to cut the price of their standard or default deals if they are more costly than the new price cap level. Some companies already charge below this, so won't need to make a change (although they might do so anyway).
, and also don't have to reduce their prices. This is because the government has granted them an exemption because their tariffs support the generation or production of renewable energy, and the costs are 'materially greater' than the price cap.
Significant falls in wholesale energy prices are the reason for the price cap cut, Ofgem explained. It said that low gas demand in winter, good gas supply and 'relatively healthy' amounts of gas in storage mean that wholesale prices have dropped.
Other costs, including VAT and supplier profits, also fell slightly.
But other costs rose slightly - equivalent to an extra £7 per year. These were: operating costs, network charges and environmental schemes. But the savings on wholesale energy more than offset these, according to Ofgem.
It will next be reviewed in February 2020, to change in April 2020.
Natalie Hitchins, Which? head of home products and services, said: 'Lowering the price cap will provide some relief to hard-pressed households - but millions of energy customers on default tariffs will still be left paying hundreds of pounds more than they need to each year.
'While the deadline for energy providers to lower their prices is 1 October, we would urge companies to pass on these savings as soon as possible. However, for the best deals on the market, customers should consider switching providers - you could choose better customer service while saving over £400 a year.'
If you're a pay-as-you-go energy customer, there is also a price cap limiting how much companies can charge for prepayment meter tariffs.
This is also decreasing, by £25 per year for an average user. This means you could pay £1,217 per year from October if your energy company lowers its prices to the maximum level allowed under the cap.
But companies can now charge prepayment customers more than those paying by direct debit for standard or default deals, for the first time since the price cap was introduced. The prepayment cap is £38 per year higher than the one on standard and default tariffs.
This is because the way the PPM cap is calculated was changed last month. The Competition and Markets Authority recommended the change which, it says, means the prepayment cap now fully reflects the higher cost of providing energy to pay-as-you-go customers.
Prices are based on a dual-fuel tariff available in all regions in England, Scotland and Wales paying by monthly direct debit (unless stated), with paperless bills.
Energy usage is based on Ofgem's annual average figures for a medium user (12,000kWh gas and 3,100kWh electricity). Data is from Energylinx. Prices given are averages across regions, are rounded to the nearest whole pound and correct on 1 August 2019.