Ofgem Extends Ban on Acquisition Only Tariffs to 2026

What Are Acquisition Only Tariffs?

Acquisition-only tariffs were special deals provided by energy suppliers. These offers aimed to get new customers by offering great rates. You usually find these deals in the retail energy market. Energy suppliers shared the best available deals with new customers. However, loyal customers did not get the same options.

This practice made the energy market unfair. Customers who stayed with their current supplier often paid higher energy bills. This system mainly helped inactive switchers. They rarely looked for better deals. While it brought in new customers, it damaged consumer trust and created unfairness. Because of this, concerned consumer groups asked for changes in regulations.

Why Was the Ban on Acquisition Only Tariffs Introduced?

The ban on acquisition-only tariffs started in January 2021. Ofgem created this ban to quickly improve the retail energy market. Their goal was to stop loyalty penalties and provide fairer treatment for every energy consumer. Since then, the ban has been renewed several times. This was done to fit changes in the energy market and to protect consumers during the ongoing energy crisis.

Key Timeline for the Ban on Acquisition-Only Tariffs

• January 2021: Ofgem begins the Ban on Acquisition-Only Tariffs (BAT). This stops loyalty penalties. It makes sure everyone pays a fair price.
• March 2022: Because of the energy crisis, Ofgem extends the ban. They want to keep prices fair for customers during these difficult market changes.
• October 2023: The ban is extended again, now until March 2024. This helps consumers handle unstable energy prices caused by changing wholesale costs.
• November 2024: After a needed discussion, Ofgem says they are extending the ban again. It will go on until March 2026. They highlight how important it is to protect vulnerable consumers and to have better standards in the market.

Goals of the Ban

The ban was part of Ofgem’s larger plan to help people during the energy crisis. The plan aimed to:

• Promote fairness for consumers: Remove the “loyalty penalty” so loyal customers do not pay more than new customers.
• Encourage higher standards: Energy suppliers should give their best rates to all customers. This will lead to better service and fairness.
• Build a stable energy market: Make sure there is transparency and fairness so everyone can benefit.

Compare Energy Prices

Thinking about changing your energy provider?

Compare Now

What Is the Market-Wide Derogation?

The Market-Wide Derogation is a rule from Ofgem. It lets energy suppliers offer special deals to current customers whose contracts are ending soon. These deals are different from acquisition tariffs, which are for new customers. The special deals are designed for loyal customers who may want to switch to a different provider.

The derogation provides some flexibility. However, it also raises concerns about the future of price protection and its impact on the energy market. This version of the BAT, mentioned in Utility Week, aims to be fair for consumers while encouraging competition. Still, it has sparked talks on how effective the price cap is in dealing with wider problems in the retail energy market.

Does the Market-Wide Derogation Align with Consumer Fairness?

The Market-Wide Derogation has people who support it and those who do not. A lot of people talk about how fair it is.

• Supporters say:
  • It gives better deals to loyal customers. This helps build trust with consumers.
  • It focuses on the best interest of all customers, especially those who want to stick with their current supplier.
  • It helps keep customers, which leads to better service and higher standards in the retail energy market.
• Critics say:
  • It makes the market less clear. This makes it hard for people to compare the best available deals.
  • It may help most suppliers but, it hurts the fairness of the market.

Gillian Cooper is the Director of Energy at Citizens Advice. She mentioned that the derogation could help in certain situations. But, we need to keep a close eye on it. This is key to protecting the voices of consumers and meeting the needs of vulnerable households.

Impact on Consumers

Access to Retention Deals: A new rule under the Market-Wide Derogation allows energy suppliers to offer tailored deals to loyal customers. This practice was uncommon before but helps address the issue where new customers received better rates while long-standing users faced higher energy bills. Many households on standard variable tariffs (SVTs) could benefit from these retention deals if they actively seek them out. According to Citizens Advice, 8 out of 10 households are on SVTs, and many of these could save money by negotiating with their supplier.

Challenges for Inactive Switchers

The Market-Wide Derogation poses challenges for inactive switchers—those who rarely check or compare tariffs:

• These customers may not search for better prices or explore deals with their current supplier.
• They may remain unaware of the best available deals, missing opportunities to save.

A report from the End Fuel Poverty Coalition revealed that over 50% of UK households have switched energy suppliers fewer than two times. This indicates that many could be paying more than necessary. The future of the ban should include better outreach and education to inform these users about potential savings.

Consumer Trust Concerns: While retention deals aim to promote consumer protection, they have raised concerns about trust in the energy sector. Many customers feel confused by the lack of transparency in these custom offers and unclear pricing structures. This leaves them questioning whether they are genuinely receiving a better deal. A comprehensive review of the energy sector may be needed to rebuild confidence and ensure fairness for all users.

Impact on Competition

Customer Retention Incentives: By allowing suppliers to retain customers through bespoke offers, the derogation encourages suppliers to focus on keeping their loyal customers satisfied. This could improve better service and drive better standards within the market.

Reduced Incentive for Innovation: On the flip side, offering bespoke deals to individual customers could reduce the motivation for suppliers to innovate or introduce competitive tariffs for the broader market. This, in turn, affects price reductions and market-wide efficiency. Research from Utility Week found that over 70% of stakeholder views expressed concern that bespoke retention deals might lead to stagnation in tariff innovation across the sector.

Challenges for Smaller Suppliers: The Market-Wide Derogation might disproportionately benefit larger suppliers, who can afford to offer bespoke deals, while smaller suppliers struggle to compete. This could reduce diversity in the retail energy market and leave consumers with fewer options. A comprehensive review of smaller suppliers by Ofgem indicated that 60% of small providers view bespoke retention deals as a threat to their long-term viability in the market.

Hindering Stable Market Development: Stakeholder views have highlighted that the derogation’s short-term benefits could undermine the development of a stable energy market. Without consistent competition and transparent pricing, the market risks becoming overly reliant on tailored deals that do not benefit all consumers equally. A 2024 report by Gillian Cooper, Director of Energy at Citizens Advice, stressed that transparency in tariffs remains critical to ensuring the best interest of all customers, especially during volatile periods like the energy crisis.

Why Is BAT No Longer Serving Its Original Purpose?

The Ban on Acquisition-Only Tariffs (BAT) was made to protect consumers during tough times in the energy market. Now that we have the default tariff cap, some people believe the BAT is no longer necessary. They think it only repeats the protection that other pricing rules already give.

Critics and worried consumer groups believe that BAT:

• This plan is not good for the future of price protection.
• It hurts competition by blocking deals that could make prices lower for everyone.
• It does not help create trust for shoppers in the retail market. Many inactive switchers end up paying more.

Compare Energy Prices

Thinking about changing your energy provider?

Compare Now

How Does BAT Affect Energy Market Competition?

The BAT has changed things a lot in the retail energy market.

When there are no acquisition tariffs, people have fewer options. This can make it hard to find the best rate or get a better deal.

• A big problem for smaller suppliers is that they find it hard to follow the rules.
• The BAT gives money to larger suppliers to help them meet these rules.
• This pressure on smaller providers can reduce diversity in the energy market.
• Consumers may face higher energy bills because the BAT limits price options.

People want to see the whole energy sector. They are asking for this to find answers to problems and to build better solutions for the future.

Should the Market-Wide Derogation Be Retained Until 2026?

Ofgem wants to keep the Market-Wide Derogation going until 2026. This decision has led to discussions among different groups of people involved in this matter.

Support for retention:

• It gives a way to protect consumers and keep a fair market.
• It helps improve service and higher standards by letting suppliers serve loyal customers directly.

Opposition to retention:

• Critics say it shuts out the voices of consumers who want clear market information.
• It may not be in the best interest of all customers, especially those who cannot get special deals.

A statutory consultation is set up to collect opinions from people involved. It asks if the temporary rule should turn into a permanent ban or if different actions should be taken instead.

How to Compare and Save on Energy Prices

Shoppers can take some steps to find the best deals during these changes:

• Use Comparison Services: Regularly check different prices. This helps you find the best available deals.
• Check with Your Current Supplier: Talk to them about any special offers or discounts for loyal customers. This is part of the Market-Wide Derogation.
• Improve Energy Efficiency: Using tools like smart meters and better home insulation can help you use less energy. This will lower your energy bills.
• Stay Informed: Keep up with news from groups like Citizens Advice and Ofgem. This helps you understand the future of the BAT and trends in the energy market.

FAQs About Acquisition Only Tariffs and Ofgem’s Ban