Customers, Policy & regulation

Retail market has engagement problem, not price problem, argues chief executive of Eon UK

A universal price cap for standard variable tariffs will be harmful to consumers over the long run, according to Eon UK chief executive Michael Lewis.

Intervention in the retail market will reduce competition, deter engagement and put the brakes on innovation, he told delegates at the Utility Week Congress in Birmingham.

“We don’t have a price problem in the UK market,” said Lewis. “What we have is an engagement problem.”

He said a stable, long-term regulatory framework with the right incentives in place would enable the retail market to invest and innovate, bringing benefits for consumers.    

“But,” he added, “a blanket cap on the whole market will have the opposite effect. It will reduce customer engagement in the market; it will reduce choice and it will reduce the opportunity for new innovative competitors to come into the market.

“Indeed, that’s what the Competition and Markets Authority concluded; that any short-term gains to customers from a blanket price cap will outweighed by long-term detriment. That’s what we believe and why we are very much opposed to a one-size-fits-all blanket cap.”

His comments come after prime minister Theresa May vowed to put a price cap on “rip-off” energy bills at the Conservative party conference last week. She later clarified that the price would apply to the 17 million customers on standard variable tariffs.

The government is due to publish draft legislation on the plans for a price cap tomorrow (12 October).

Lewis believes smart meters will be a game-changer for the retail market: “These really are devices which change fundamentally the way in which customers engage with their energy supplier.”

Eon recently announced plans to axe its SVT in early 2018 and Lewis said the move will be timed to coincide with the beginning of the rollout of SMETS2 meters.

He continued: “I was pleased to hear that Ofgem are now announcing that they will enable customers to roll on to another fixed-term tariff rather than default onto the SVT. We never want to default a customer onto the SVT again and that’s an absolutely critical piece of enabling activity that Ofgem can do.”

Lewis also said the government needs focus more on energy efficiency: “There are six million houses that we know are poorly insulated – not energy efficient – and we’re wasting a huge amount of energy everyday with that housing stock.

“We really do need a national programme to upgrade that housing stock and reduce losses of energy. If there’s one single thing the government can do to reduce energy bills and help vulnerable customers that’s it: deliver a long-term policy framework for insulating and upgrading our housing stock to the best standards of energy efficiency.”  

Fellow speaker and corporate policy and regulation director at EDF Energy, Angela Hepworth, welcomed Ofgem’s plans to introduce a price cap for vulnerable customers: “We supported the CMA recommendation to implement a price cap for prepayment customers and we very much support the broader cap for vulnerable customers that has been announced by Ofgem today.”

But like Lewis she opposed the government’s plans to cap energy bills for all SVT customers.

She said if there is to be a price cap “it should apply to all suppliers; it should be time limited; it should be set at a level which as far as possible retains the competitive dynamic in the market; and it must enable suppliers to recover their reasonably incurred costs.”

“This last point is important and in the interests of customers,” she added. “Suppliers must be able to invest to serve their customers well and invest in new products and services that will drive greater customer engagement.”

Hepworth said politicians need to be up front with the public about the extent to which energy bills are determined by costs beyond suppliers’ control, such as network levies and low-carbon subsidies. 

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