Energy regulator Ofgem cracks down on loyalty penalty

New rules from the regulator are designed to protect both households and suppliers.

16 February 2022

Energy regulator Ofgem has announced plans to crack down on the loyalty penalty that has plagued households across Britain for years.

The watchdog said suppliers will be required to offer all their existing customers the same deals that new customers can sign up to.

It is a temporary decision designed to end the practice of offering cut-price deals to new households that sign up to a supplier.

These deals are only possible because existing customers, including those who do not shop around, are paying a higher price.

The decision comes as energy prices have soared in the last year, and the average energy bill is set to spike by 54% for 22 million households from April.

Ofgem said: “The energy market has faced a huge challenge due to the unprecedented increase in global gas prices; a once-in-a-30-year event. We’re putting in place short-term measures to protect consumers.

“All suppliers will have to offer existing customers the same deals available to new customers.

“This will ensure customers can benefit from all tariffs available in the market and enable more consumers to benefit when wholesale prices fall.

“We’ll monitor how effective this is before considering whether it should become an enduring measure in the market.”

The regulator also announced a decision that it hopes will protect those suppliers who responsibly buy in advance the energy they think their households will use in the future.

The practice – known as hedging – protects companies from wild swings in the energy price.

Many of the more than two dozen suppliers who have gone bust in recent months had not hedged properly.

Under the new plan if a company takes a customer from one of its rivals it will have to pay a fee to the rival, although only if wholesale prices fall.

This might provide some reassurance for suppliers if the price of gas retreats from its historic highs.

“Alongside tougher financial regulation, this will make sure that energy companies do not take disproportionate financial risks and 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,” Ofgem said.

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