Domestic energy price cap ahead for standard variable and default tariffs

The Department for Business, Energy and Industrial Strategy (BEIS) has announced it will introduce a new Bill for a domestic energy price cap.

The Draft Domestic Gas and Electricity (Tariff Cap) Bill is in line with Prime Minister Theresa May’s plans announced earlier this year. The new legislation will provide a temporary price cap for domestic customers on Standard Variable Tariffs (SVTs) and default tariffs. This cap will be set by Ofgem, and it will initially last until the end of 2020, with the potential to be extended by up to three years if needed.

The Draft Bill requires Ofgem to modify the standard licence conditions for gas and electricity suppliers. This will require the industry to impose a price cap for SVTs and default tariffs offered to domestic customers.

Green tariffs

There will be exceptions for those who already benefit from protections under the Pre-Payment Meter (PPM) cap (or a replacement). Exemptions will also be made for tariffs which provide additional environmental benefits, so called green tariffs.

Ofgem must do this after Royal Assent of the Bill. The legislation also requires Ofgem to review the market for domestic electricity and gas supply contracts and to assess whether conditions for effective competition are in place. This includes, among other things, the ongoing roll out of Smart Meters. The Secretary of State will then consider Ofgem’s recommendations and publish a statement regarding whether the conditions for effective competition are in place. This process applies in the years 2020, 2021 and 2022 if the tariff cap conditions still apply in those years.

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