- Energy bills are still high partly because of Ofgem rules brought in during 2022
- These rules mean firms cannot undercut their rivals on new energy deals
- Now the regulator wants to scrap these restrictions to lower bills for consumers
Cheaper energy deals could return by this winter as regulator Ofgem plans to scrap rules propping up eye-watering prices.
At the moment, part of the reason gas and electricity bills average £1,690 a year is that Ofgem rules mean energy firms cannot offer cheaper deals to new customers unless they also offer them to existing ones.
Ofgem brought in this ‘ban on acquisition-only tariffs’, or BAT, in October 2022 to stop energy firms from using their classic tactic of undercutting one another to sign up new customers.
Now the energy regulator wants to scrap the ban, as first revealed by This is Money.
Racking up: UK households have been grappling with sky-high energy bills since late 2021
Ofgem is consulting on plans to end the ban by 1 October, ahead of its natural end point in March 2025.
The regulator said that ‘retaining the BAT is no longer necessary for market stability and is likely to result in net costs to consumers through increased prices’.
Ofgem wants to end the BAT on 1 October unless it discovers a very good reason to keep it.
What does the ban on acquisition-only tariffs do?
The point is to stop energy firms from offering cheap fixed-rate deals which could become unsustainable if volatile energy prices suddenly shifted.
A sudden shift in prices meant dozens of energy firms collapsed in late 2021 due to being forced to sell customers power for less than they could buy it for.
Ofgem wanted to stop more energy firms from collapsing, as at one point there was a very real risk that the UK could be left with no energy companies at all.
But the trade-off was that energy prices remained high for customers.
The ban led energy firms to be more conservative with their prices, though some critics have accused them of profiteering.
As a result, less than 3 per cent of fixed rate energy deals work out cheaper than the Ofgem price cap – and many come with high exit fees for those wanting to switch.
What does this mean for energy bills?
In theory, removing the ban should give energy firms the incentive to bring in genuinely competitive deals, rather than those that hover around the level of the Ofgem price cap.
The energy price cap is set by regulator Ofgem and limits how much firms can charge households on variable-rate energy deals paying by direct debit, for both units of gas and electricity and standing charges.
Analysts at Cornwall Insight predict that the average price-capped bill will fall to £1,559.61 a year in July.
It is then forecast to rise to £1,636.44 in October and edge up slightly again to £1,634.20 in January 2025.
However, Ofgem has warned that scrapping the BAT does not mean the UK will see the return of super-cheap energy deals that were common before late 2021.
The regulator said that its other rules, including one on how much cash energy firms have to keep in reserve, ‘will have
the effect of preventing a return to unsustainable price competition and excessive risk taking’.
Richard Neudegg, director of regulation at Uswitch.com, said: ‘Getting rid of the BAT in October heralds good news for households seeking cheaper energy bills.
‘With a final decision from Ofgem due in July, this move is a no-brainer to improve the chances of decent fixed deals in time for winter.
‘Forcing providers to offer the same energy deals to new and existing customers has meant that suppliers have been encouraged to give up delivering cheap deals.
‘But with the price cap changing every three months, consumers desperately need good-value fix options to give them more certainty on their bills.’