Households face long wait for energy cap
Ofgem chief warns plans for a legally binding price cap could take months to come into force officially
THE full brunt of the Government’s proposed cap on energy prices may only be felt towards the end of next winter, offering suppliers a stay of execution during which they can move customers to better-value deals.
The energy regulator Ofgem vowed yesterday to extend its price cap for customers using pre-payment meters to include 1m households considered socially vulnerable.
The move comes ahead of the Government’s bid today to compel Ofgem to take tougher action by legislating stronger powers for a cap on bills for 15m households. Theresa May, the Prime Minister, said: “I have been clear that our broken energy market has to change – it has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much. Today’s publication of draft legislation is a vital step towards fixing that, and in offering crucial peace of mind for ordinary working families.”
But Dermot Nolan, Ofgem’s chief executive, admitted its own cap will only take effect from February and that a legislated market-wide clampdown could take far longer.
Mr Nolan said a “reasonable guess” for the cap on standard variable tariffs would include a 50 to 60-day statutory consultation with industry and five months to enact.
He declined to comment on how long the parliamentary process of turning the Bill to law might take.
In the meantime, Britain’s largest energy companies will come under pressure to use the coming months to move customers away from standard variable tariffs, which are more expensive than fixed-rate deals. However, Ryan Thomson, from Baringa Partners, said there were already signs that the market “may well correct itself before the Government can apply any industry-wide price cap”.
The latest figures from Energy UK show that customer switching between suppliers has climbed to record levels. In September the number of customers choosing a better deal surged 46pc above the same month last year to bring the total number of switches to 4m this year.
Ofgem figures have also shown a healthier market. The regulator said consumer engagement has increased from 37pc in 2015 to 41pc in 2017, with a third of switchers changing supplier for the first time in the past 12 months. Scottish Power and Eon UK have both signalled plans to move customers away from SVTs in recent weeks.
The pair will roll customers at the end of a fixed-rate deal on to a new fixed deal rather than a default tariff.
British Gas, the country’s largest supplier, has also called for standard variable tariffs to be scrapped entirely rather than capped.
But both the industry and regulator are likely to remain under intense scrutiny after politicians called for an end to so-called “rip-off tariffs”.
Greg Clark, the Business Secretary, warned that Ofgem’s move did not go “far enough or fast enough”. “I think it’s important that consumers who are overpaying should be given some relief from that. That’s why I will proceed and bring forward legislation later this week that will compel them to do that,” he said.
Around 70pc of homes pay more than they need to by remaining on an SVT deal due to historic low levels of consumer engagement in the energy market.
Lawrence Slade, the boss of trade group Energy UK, said it was “right we ensure protection for the most vulnerable”. But he also warned that this should not “risk halting the growth of competition and engagement in the market, which is ultimately benefiting all consumers”.