Dermot Nolan has apologised to vulnerable customers for not acting earlier to crack down on energy prices and revealed that he will not be taking a bonus this year.
The Ofgem chief executive also told MPs today that energy bills could vary by up to £100 following the introduction of the government’s mooted cap, which he warned suppliers could ‘game’ by offering more expensive green tariffs.
Giving evidence to the House of Commons BEIS (business, energy and industrial strategy) committee inquiry into the government’s draft bill to cap standard variable tariffs, Nolan apologised for not acting faster to reduce hard-up customers’ bills.
Responding to a question from Tory MP Antoinette Sandbach, he said: “We have not done as well as we could have.”
He also admitted that competition was inadequate in the energy supply market. “It’s not as effective as it could be yet.”
Pressed by the committee chair Rachel Reeves on the level of bonuses for Ofgem executives, Nolan said he will not receive one this year but defended the pay outs awarded to his staff.
He also said that in order to ensure effective competition in the energy market, a variation of £50 to £100 between the highest and lowest standard tariffs was ‘acceptable’ with the exact level depending on the price of energy at the time.
And Nolan warned energy suppliers that Ofgem would fine companies that tried to use the government’s proposed exemption on green tariffs in order to get round the market-wide cap on SVTs.
The regulator’s chief executive told the committee that if the price cap bill received Royal Assent by the summer, the clampdown on SVTs could be in place by the time customers received their winter energy bills.
He said Ofgem would require at least five months to carry out statutory consultation on the cap’s implementation once it had received Royal Assent.
On the separate market-wide cap, which would be introduced via the draft bill being considered by the select committee, Nolan said Ofgem is drawing up a methodology on how it would operate.
He said that the regulator aimed to start consulting on this methodology when the final version of the price cap bill is presented to Parliament once the committee has finished its pre-legislative scrutiny process.
And the Ofgem chief said the price cap would remain in place after 2023, the cut-off date in the draft bill for its lifting, if competition had not improved sufficiently.
“It would be hard to explain to people why the cap had not been removed,” he said.
Nolan also revealed that the government is preparing to introduce legislation to flag up to energy companies which customers should qualify for Ofgem’s proposed safeguard cap targeted at vulnerable customers.
He said the regulator is discussing with BEIS and the Department for Work and Pensions about data sharing arrangements that would enable energy suppliers to identify households eligible for reduced bills because they are on a low income.
He said secondary legislation should be ready by the end of next month to enable the DWP to supply information about customers who should qualify for the safeguard cap.
Quizzed on the how the cap on prepayment meter bills introduced last April was working, Nolan told the committee that analysis carried out by Ofgem indicated that switching rates have ‘fallen but not collapsed’ amongst such customers.
The Ofgem chief executive said that an analysis of firms, which predominantly supply to prepayment customers, showed that they had continued to grow albeit a ‘little slower’ than before the introduction of the cap.
“The indication is that a reasonable amount of switching is going on in the prepayment market.”