Price cap must go, say energy companies
Firms insist restriction has to be abolished as gas price hits record high, but Kwarteng won’t back down
THE Business Secretary was last night under growing pressure from energy companies to scrap the price cap, as the UK wholesale price of natural gas soared to a record high.
Kwasi Kwarteng yesterday insisted it “will remain in place”, assuring consumers that their bills would not rise as a result of the gas crisis. But The Daily Telegraph understands the issue was repeatedly raised by energy firms in a meeting with the minister as they demanded he abolish or raise the cap.
The companies insisted they needed to hike prices, as the wholesale cost of gas had jumped about 80 per cent since July. Last night, the UK natural gas wholesale price closed at a record high after rocketing 17 per cent in a day.
Ministers are standing firm, however. “The energy price cap, which saves 15 million households up to £100 a year, is staying. It is not going anywhere,” Mr Kwarteng told MPS. And in a joint statement last night, Mr Kwarteng and the Ofgem chief executive, Jonathan Brearley, said: “Central to any next steps is our clear and agreed position that the energy price cap will remain in place.”
A government source said last night: “The energy suppliers want to get rid of the cap. It came up multiple times [at the meeting]. But as Kwasi has said, the priority is protecting consumers, and the price cap protects consumers.”
The limit is already set to rise on Oct 1, raising the average dual fuel bill by £139 to £1,277. The increase is based on a review in August.
Set every six months, the next review point is in the spring, with the resulting change coming into force on April 1.
Mr Kwarteng warned in the Commons that gas prices “could be high for longer than people anticipate”, highlighting the “considerable amount of volatility in these markets”. However, he pledged there would be “no threeday working weeks or a throwback to the Seventies”, as he insisted there was “absolutely no question of the lights going out” owing to high costs.
Energy firms including Centrica, Shell, EDF, E.ON and Scottish Power attended the meeting, alongside Ofgem, the regulator, the National Grid and Citizens Advice.
Sector analysts have warned that of the 55 energy companies currently operating, fewer than 10 may survive by the end of the year.
The Government is examining a suite of proposals to ensure the supply of energy to consumers is not interrupted by the collapse of suppliers.
At present, when an energy company fails, a supplier of last resort is sought, with the Government awarding the customers to the bidder offering the best deal. If dozens of smaller energy firms collapse at once in the coming weeks, ministers are looking at three options to help ensure their customers are not left without energy.
One idea under consideration is extending government loans to large energy companies to encourage them to take on the customers of the failed company. The large firms stand to gain in the long term if wholesale prices fall again, by drafting in swathes of new customers.
The second option involves ministers and Ofgem appointing a special administrator to run the failing company in the short term, including funnelling in cash to prop it up temporarily, it is understood. However, the Business Secretary warned yesterday: “The Government will not be bailing out failed companies.” He stressed there would be “no rewards for failure or mismanagement” for suppliers left vulnerable by failing to hedge sufficiently.
His remarks appeared to cut across the Prime Minister’s insistence yesterday that the Government “will make sure we work with all the gas companies to do whatever we can to keep people’s supplies coming, to make sure they don’t go out of business, and to make sure we get through the current difficult period”.
The third option revolves around the creation of a “bad bank” to house customers that suppliers could not take on without losing money.
Mr Kwarteng conceded that the Government is examining all options, but stressed he would “avoid” a stateowned energy company “insofar as I can”, adding: “I think there are marketbased solutions.”
Steve Barclay, the newly appointed
Chancellor of the Duchy of Lancaster, hosted a cross-whitehall meeting of ministers to discuss the crisis, including Mr Kwarteng, George Eustice, the Environment Secretary, and Simon Clarke, the Treasury Chief Secretary.
Mr Barclay will resume talks with senior Cabinet colleagues today. No final decisions have been made by ministers on the support measures they may roll out.
The spiralling cost of gas bills threatens a knock-on effect in other sectors too. The British meat industry warned yesterday that a linked shortage in carbon dioxide could soon hit production. Ministers are understood to be examining proposals to subsidise fertiliser production, which is a major producer of CO2 as a by-product, in the short term.
The industry believes that the price cap is a pressing problem for suppliers, as it blocks them from passing on the rocketing increase in the wholesale gas price to customers. The cap was introduced in 2018 to protect consumers following accusations of profiteering by energy companies. It limits the rates that suppliers can charge for their default tariffs, which currently cover about 15 million households.
Ofgem calculates the limit every six months to reflect wholesale energy prices over the previous six months.
Many companies have long argued it makes it very difficult to trade profitably. Before it was introduced, Centrica, the owner of British Gas, argued it would have “harmful consequences for consumers”.
One industry source said yesterday: “It’s hard to both have a price cap and let companies be unhedged [not buy in advance]. The market has had an incredible shock.”