Price-setting fears following energy probe
FEARS over government price- setting knocked energy shares after a year-long probe into the sector recommended radical measures to shake up competition.
The ‘Big Six’ providers – British Gas owner Centrica, EDF, EON, Npower, ScottishPower and SSE – have been investigated by the Competition and Markets Authority over allegations they colluded to rig prices.
Its report, published yesterday, stopped short of calling for the industry players to be broken up.
But it found that ‘millions of customers are paying too much for their energy bills’ – and suggested a host of measures to improve competition in the industry. The most controversial one was a suggestion that customers would be moved onto a ‘safeguard tariff’, with prices capped by regulators, if their previous deal expires.
This would incentivise them to move onto cheaper deals, but not allow power firms to profiteer by putting them on expensive and never-ending tariffs.
Power firms’ standard variable tariffs, which many customers end up on unwittingly and which are more expensive, would be scrapped under the proposal.
‘If that’s the way they want to go then the devil will be in the detail,’ said Centrica chief executive Iain Conn, pictured.
Analyst Peter Atherton at Jefferies said the tariff ‘will need to be very carefully designed if it is to work in the wider consumer interest’. He added: ‘Such tariffs are common in the US but sometimes inhibit competition.’
But he said the firms ‘will find much to like in the CMA’s analysis’.
Centrica’s shares fell almost 3pc to finish 7.6p lower at 259.8p. They have come down from as high as 402p two years ago.
Shares in SSE, the only other listed member of the Big Six, fell 2pc to close 33p lower at 1541p.
The CMA had previously indicated it would not recommend the firms be broken up. This had then been taken into account in Centrica and SSE shares, Atherton added. Other recommendations include:
Allow power firms to offer as many tariffs as they like. The current limit is four;
A greater push to smart meters, which charge customers for power they use and eliminate estimated billing;
Regulator Ofgem should offer an unbiased price comparison site;
Restrict the profits that power providers can make;
Energy companies should ‘prompt’ their customers to switch tariffs more often;
The energy department DECC must consult before awarding green subsidies to new projects.
Centrica’s Conn warned that being forced to talk to customers more frequently about new tariffs could lead to accusations of ‘cold calling’. But smaller providers, which have made in-roads into the market share of the larger players in the last two years, complained that the proposed remedies did not go far enough.
Darren Braham, founder of First Utility, the largest independent supplier, said: ‘They’ve been studying this for more than a year and they still have many open questions. We’ve long called for more to be done to address the lack of engagement such as showing the cheapest tariff on the market to customers on a variable tariff every month and calling it what it is – the out of contract tariff.’