MPs have branded as “feeble” the energy sector’s response to the threat of a price cap, which they say the industry has brought upon itself.
The BEIS (Business, Energy and Industrial Strategy) select committee has published its report on the government’s draft bill to cap on standard variable tariff (SVTs) bills, following a request by the business secretary to scrutinise the legislation before it is tabled in Parliament.
The MPs label steps taken by companies like Eon, which has promised to phase out SVTs for customers who take smart meters, as “insufficient to address the scale of the problem”.
“Suppliers most at fault did not take repeated warnings from the government seriously enough: we were underwhelmed by the feeble steps announced by some of the big six in the hope to avoid a cap.”
And the report notes that EDF, Npower and Scottish Power have taken no steps to address the concerns raised by the government about excessive default tariffs.
It says: “Those retailers who were found by the Competition and Markets Authority to be operating inefficiently and passing excess costs onto standard variable and default tariff customers have brought this intervention upon themselves.”
The committee also accuses Ofgem of being “too slow and reluctant to use its extensive powers to step in and protect customers”, adding that the energy regulator needed repeated nudges to start actively safeguarding some consumers against overcharging.
The MPs urge Ofgem to be more proactive in the future in discharging its statutory duties towards consumers.
As a result of these repeated failures, the committee gives its backing to the government’s initiative to cap standard variable and default tariffs.
And it supports ministers’ moves not to make the cap relative on the grounds that it would create a “perverse incentive” for suppliers to maintain profit levels by increasing their lowest prices.
It says this risk is less likely with an absolute cap, which the committee argues is the “most effective measure for delivering the bill’s key goals: reducing the overcharging of standard variable and default tariff customers”.
The committee says the Competition and Markets Authority’s Energy Market Investigation remedies, which emphasise measures to improve competition by encouraging customer engagement, would “not necessarily fix the problems… soon enough”.
But it says that the bill should be tightened up by requiring a review at least every six months by Ofgem of the level at which the cap is set.
And it urges the government to amend the legislation to guard against the risk that energy companies could use the exemption of green electricity tariffs from the wider cap as a loophole to continue overcharging customers.
“We share stakeholders’ view that the bill as currently drafted allows for unscrupulous suppliers to game the system and avoid the cap by moving customers on poor-value tariffs onto loosely-defined green tariffs.”
The MPs also ask the government to confirm its long-term measures to protect vulnerable customers after it lifts the mooted market-wide and existing safeguard tariff caps for poorer households.
To enable better data sharing about vulnerable customers between the government and energy suppliers, the report calls for an amendment to the Digital Economy Act 2015.
And it calls on the government to ensure that the bill receives Royal Assent before the parliamentary summer recess so that it can be implemented next winter.
But it backs the government’s decision to make the cap a temporary measure.
Responding to the select committee report, Energy UK chief executive Lawrence Slade said: “With a record 1 in 6 customers switching last year and over 60 suppliers to choose from, the energy market is changing rapidly and has never offered so much choice. It’s vital the cap doesn’t halt the growth of competition which is helping customers to find a better deal and save on their energy bills.
“It’s also important that the cap accurately reflects suppliers’ costs, most of which are out of their direct control. Ofgem’s decision to raise the level of the prepayment cap last week shows how these costs can increase.
“Suppliers will remain committed to further improving engagement and choice for all their customers and doing more to support those in vulnerable circumstances.”