Five former top industry regulators have banded together in a bid to head off mooted government moves to cap retail energy prices.
In a column for the Daily Telegraph published this morning, the five ex-regulators have warned that fresh meddling would have an “adverse effect” on the energy market.
Their intervention follows a speech last week by prime minister Theresa May in which she said that relying on customers to switch suppliers, the current Ofgem policy, was not leading to lower energy prices.
She said that the government was “looking closely” at helping customers stuck on relatively expensive standard variable tariffs (SVTs), which she described as a “system that traps the poorest customers on the worst deals”.
The column was written jointly by Stephen Littlechild, who was head of the Office of Electricity Regulation between 1989 and 1998, former Ofgem chairman Sir Callum McCarthy, ex-Ofgem managing director Eileen Marshall CBE, former Ofgem senior executive Stephen Smith and Clare Spottiswoode CBE, who was head of Ofgas from 1993–1998.
They say that it is no use “shooting the messenger” by blaming energy companies for passing on costs such as those for fuel, transmission and environmental and social levies.
Pointing to the conclusion of the CMA (Competition and Markets Authority) report that a price cap for all consumers would “undermine” competition in the electricity market, the former regulators urged ministers to “resist…the temptation to intervene further”.
“The evidence is clear: regulatory interventions have been counterproductive. Retail energy price controls would have an adverse effect on a market that is working better than is generally realised.”
They add that the existence of discounts to maintain the loyalty of switch-happy consumers and attract new customers, is not confined to the energy market.
And while acknowledging that increases in energy prices is a “legitimate worry” for customers and politicians, the regulators say that the influx of around 50 entrants into the energy market meant that the big six faced competition for the business of those customers who are on SVTs.
“Competition is increasingly forcing all suppliers to be more efficient and to pass these benefits to customers.
“Retail energy profits are not excessive, loyal customers are not being ripped off, and there is no need to pressure consumers to be more active.”
The regulators were backed up by Ryan Thomson, partner at Baringa Partners, who said: “While the government clearly believes that action may be needed to increase competition in the energy market, a price cap is not the right solution to the problem.
“A one size fits all solution like a fixed price cap is unlikely to address this and could have unintended negative consequences
“Any sort of change to the market price of energy might actually increase the number of customers who remain with the larger suppliers, as it would reduce the difference in price between suppliers and therefore remove the incentive for customers to switch. Both large and small energy providers would be stuck in a rut, with dented profits, at a time when significant investment is required.”
Thomson said that regulation needed to take account of the diversity of the energy customer base by placing more emphasis on what suppliers were doing to encourage customer engagement such as via the use of smart devices.