The proportion of customers on poor value standard variable tariff (SVT) deals could plunge to just 10 per cent within the next 12 to 18 months, Dermot Nolan has predicted.
Giving evidence at a special hearing by the BEIS (business, energy and industrial strategy) select committee on energy price caps this morning, the Ofgem chief executive also revealed the energy regulator would be publishing a new vision of the sector that could outline removing the requirement that energy customers must deal with a licensed supplier.
Nolan told the committee that Ofgem was “likely” to publish targets for energy suppliers to reduce the proportion of customers on SVTs, irrespective of the government’s current legislative plans to cap such tariffs.
Responding to a question on how soon that proportion of customers on such deals could fall to 10 per cent, he said, that this level could be reached within the “next 12 to 18 months”.
Rachel Fletcher, senior partner for consumers and competition at Ofgem, told the committee that the regulator had a number of measures in the pipeline to encourage customers to switch from SVTs.
“We’ve have seen a big shift of customers from SVTs before we’ve had a chance to use important new powers to trial engagement tools and target measures at those who have been with suppliers for more than three years,” she told MPs.
Nolan also said that the regulator would be publishing within the next few weeks a paper setting out its vision on the future of the energy market.
He said this could possibly include removing the requirement that customers’ only interface with an energy entity is with a licensed supplier.
Nolan said that axing this requirement could lead to a “profusion” of smaller, including peer-to-peer and local, suppliers.
But he insisted that in order to introduce a market wide cap on energy prices, Ofgem required legislative backing from ministers.
Nolan said: “I find it difficult to imagine how consultation (on a cap) could go forward without legislative backing and the legal certainty that that would provide.
“Price cap legislation will give the certainty that is required.”
He said the regulator could not introduce a cap until the bill had received Royal Assent.
But Nolan said that while the legislation is being piloted through Parliament, Ofgem would consult on the details of the mooted cap to speed up its implementation once it has been passed.
Sarwjit Sambhi, managing director UK Home at Centrica, told the committee that the British Gas parent company would not challenge a price cap if it was introduced.
“If we quickly understand how the price cap is constructed we can move at pace,” he said adding that the company would work with Ofgem and the BEIS department if the proposed cap reflected the cost of providing energy.
However, Nolan said that Sambhi’s statement was not “congruent” with the “clear” opposition that the UK’s biggest household energy supplier had privately expressed to price caps in its meetings with the regulator.
Nolan also told the committee that Ofgem was preparing a second round of its safeguard cap for vulnerable customers which could embrace a wider net of customers, including those who live in rural areas and must rely on expensive electrical heating.
And he said that while technological progress would make it easier for energy suppliers to better target customers, a safeguard cap would continue to be needed in order to protect some poorer customers from being exploited by being rolled onto expensive default tariffs.