Big Six power giants face £1.5bn hit in Tory price-cap as unions call for ‘toothless’ OFGEM watchdog to be put down

GMB, the trade union for energy and gas workers, has responded to the Prime Minister’s renewed commitment to introduce a price cap for customers on the standard variable tariffs by calling for OFGEM to be abolished and its regulatory functions taken over by Government itself.

The Tory Party manifesto before the general election pledged to introduce a “safeguard tariff” to cap consumers’ bills and in July former energy regulator Stephen Littlechild said that OFGEM can propose a tariff but ‘energy suppliers do not have to accept it.’

During her speech to the Tory Party Conference, Theresa May once again pledged to limit the amount people pay for their energy through legislation although details on how this would be done have not yet been provided.

Justin Bowden, GMB National Secretary, said: “OFGEM has been a toothless watch-dog that passed its sell-by date years ago. It is not fit for purpose and now is the time for it to be put down.

“GMB has always ridiculed the very idea of a competitive market in a natural monopoly because it is a contradiction in terms that we all pay for through our energy bills.

“OFGEM should be abolished and all its regulatory functions taken over by the government itself, making its regulatory role subject to scrutiny and accountable to parliament with the powers to cap prices if deemed necessary part of the forthcoming legislation.

“This would form the basis of an energy policy that took the real decisions needed to keep the lights on and ensure the decarbonisation of the sector, whilst guaranteeing the resources needed to generate jobs and to pay for the vital infrastructure needed to maintain our power networks.

“Any cap must differentiate between profiteering and these fundamental necessities so government should also have powers to limit profits and, where necessary, to finance and run power stations.”

While details are still to be discussed and agreed, it is currently expected that the cap will apply to customers on standard variable tariffs (SVTs) and will be administered by OFGEM.

SVTs are those tariffs which customers who have never switched are placed on. They are also the product onto which a customer who, having switched and come to their tariff end date, will be placed onto unless they make a proactive decision to move to a different product or to switch supplier.

Standard variable tariffs spark controversy for two main reasons:

Firstly they are expensive, often the energy supplier’s most expensive tariff.

Secondly, because of widespread disengagement and low switching rates in the energy market, the majority of customers (current estimates show 60%+) are on these expensive SVTs.

The pledge to cap bills for the 15 million of 27 million homes still on more expensive standard variable tariffs “battered” energy firm shares. More than £1bn was wiped off the value of Britain’s two biggest utilities.

Shares in Centrica, Britain’s biggest energy supplier (which owns Scottish and British Gas) fell to a 14-year low after Theresa May pledged to cap bills for homes.

Joe Malinowski, founder of price comparison website, commented. “While a price cap may sound attractive, offering the prospect of a £100 reduction in fuel bills for many, it could take a while to arrive and is only a fraction of what is currently on offer in the market.

“The only sure way to bring an end to rip-off energy prices is to take five minutes to compare, switch and bag yourself an annual saving of £350.  

“Yet most people, for whatever reason, don’t and so Government has chosen, rightly or wrongly, to intervene.

 “A wide-ranging price cap for all Standard Variable Tariffs will capture somewhere around 15 million households. Assuming each gets a price reduction of £100 (£50 per fuel), then that amounts to an aggregate saving of £1.5 billion.

“On the flip side, the energy industry will take a hit of equal and opposite magnitude but it will certainly not end “rip-off energy prices once and for all”.

“Sucking in new customers with loss leading tariffs and then bumping them onto expensive SVTs is by no means unique to the Big Six.

“It is a feature of the energy industry with virtually all suppliers engaging in the practise – even those that claimed they never would. It seems unlikely if not implausible that loyal customers will end up paying less for their energy than serial switchers any time soon.

“Energy suppliers will start to phase out SVTs in order to escape the regulatory price cap. Scottish-British Gas and Scottish Power have long been pushing for SVTs to be abolished and E.ON recently announced it is phasing out SVTs, initially for customers switching to smart meters.”

Meanwhile, new research from Energy UK has revealed that over 90 per cent of respondents were satisfied with the switching process.

Over two thirds agreed the Energy Switch Guarantee would increase their confidence when changing suppliers and the majority of respondents said it made them more likely to do so.

The Energy Switch Guarantee, launched last summer by Energy UK on behalf of the industry, is a set of ten commitments developed by energy suppliers to provide extra reassurance to consumers that the process is simple, speedy and safe with the whole process managed by the new supplier. The Guarantee now covers 75 per cent of the market.

Latest switching figures from Energy UK show that almost half a million customers took action on their energy bill and changed supplier in August, as part of a total of nearly 3.5 million switches in 2017 so far.

6 Oct 2017

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