The survival of the large energy suppliers is threatened by the government’s energy price cap, ex-chief regulator Stephen Littlechild has warned.
Littlechild, who is a former chief executive of Ofgem, defended the energy suppliers against accusations that the market is anti-competitive during the opening session of the House of Commons’ Business, Energy and Industrial Strategy (BEIS) select committee’s scrutiny of the bill to cap standard variable tariffs (SVTs).
The inquiry also heard concerns from the Competition and Markets Authority that the proposed price cap could become permanent
Littlechild told the committee of MPs: “SVTs are simply enabling the large companies to survive: they are not making excess profits as a group.
“We believe this market is competitive. Clearly there are higher prices for some customers than others, but broadly speaking these companies have made apparently normal profits.”
The former regulator criticised the CMA findings in its 2016 energy market study that consumers have suffered £1.4bn worth of collective detriment as a result of over-charging by their suppliers.
Littlechild said that the £1.4bn figure was difficult to reconcile with the £1.1bn worth of profits that he calculated the industry had recorded over the period examined by the CMA.
He said the blame for increased bills lay not in the retail sector but in the environmental and social obligations energy suppliers have been saddled with.
Littlechild was backed up by former Ofgem board member Stephen Smith, who said that a cap would “substantially challenge” the financial viability of energy companies and lead to a fall in switching rates.
He also criticised the limiting of environmental and social obligations to companies with more than 250,000 customers, which he described as a “massive disincentive” to expand.
He added that he had seen evidence of suppliers increasing prices when they neared the 250,000 customer mark in order to deter customers.
The BEIS committee has been tasked with scrutinising the draft bill before it becomes full blown legislation. It also heard from Laura Ainsworth, a member of the CMA’s energy market investigation group, who warned of the danger of the price cap becoming permanent.
“The worst case scenario is this may be a permanent move to price cap,” she said.
She said that the price cap could become a fixture because its existence would put a brake on customers’ engagement with the energy market.
“Once you have reduced the incentive for consumers to engage with the market, it’s going to be difficult to judge whether you have competition.
“When you get to 2022, consumers will have disengaged with the market and we could be in a worse position on consumer engagement,” she said, referring to the date when the cap is due to be reviewed, if it is introduced.