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).
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.
Further guidance for suppliers
Suppliers looking for additional guidance on how to use the latest safeguard tariff levels to ensure that their prepayment tariffs comply with the cap should refer to the document on our page safeguard tariff (prepayment) - reporting template and FAQ.
Warm Home Discount
Suppliers looking for additional guidance on how to use the latest safeguard tariff values to ensure that their tariffs comply with the cap for customers receiving the Warm Home Discount, should refer to the document on our page safeguard tariff (Warm Home Discount) - reporting template.