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 prepayment price cap. We extended the prepayment price cap to a further one million vulnerable customers in receipt of the government’s Warm Home Discount on 2 February 2018 (under the label of a ‘safeguard tariff’). Customers who get the Warm Home Discount and are on a standard variable or default tariff are price protected at the level of the prepayment price cap for these tariffs until the end of 2018, after which they will transfer to the default tariff price cap.
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 price cap 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).
On 19th July, the Domestic Gas and Electricity (Tariff Cap) Act 2018 came into force. This legislation requires the introduction of a temporary tariff cap for customers on Standard Variable (SVT) and default tariffs (the ‘default tariff cap’). On 6 November 2018, we announced our decision on our methodology to set the cap.
The default tariff cap will apply from 1 January 2019, bringing further price protection for all customers on poor value standard variable and default tariffs. View our decision here and advice for consumers here.
Safeguard tariff levels
Ofgem is responsible for administering the prepayment price cap. 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 prepayment price cap - 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.