‘Whining’ Big Six providers have brought energy price-cap on to their own heads, say MPs as they also bare their teeth at OFGEM ‘watchdog’

A price-cap on British gas and electricity bills is justified – and needed – because the current energy market in broken.

That is the conclusion – and recommendation – of British energy MPs on the Westminster parliament’s Business and Energy committee.

The MPs also said that that the Big Six have brought the introduction of a price cap upon themselves by their raising of prices in 2017 and by failing to take effective action against the overcharging for years of their customers on default and standard variable tariffs (SVTs). 

Their report finds that competition in the domestic energy market is not working effectively for 12 million customers stuck on poor-value tariffs, called standard variable and default tariffs. This market has become two-tiered, with some consumers paying up to £300 more than others each year.

The BEIS Committee said that too many energy suppliers rely on a business model where they target cheap acquisition deals at engaged customers who switch, whilst making substantial profits from ‘sticky’ customers on expensive variable tariffs who do not, or rarely, switch.

MPs said that the energy market has been dysfunctional for years, with the regulator – OFGEM – too slow and reluctant to use its powers to step in and protect the interests of customers, especially vulnerable customers.

The committee urges OFGEM to be faster and more proactive in using its extensive powers to protect consumers from overcharging in the future.

As a result, the BEIS MPs said that an absolute price cap – and not a relative price cap –  will be the most effective measure at delivering the Bill’s key goals: improving fairness and reducing the overcharging of standard variable and default tariff customers.

They also warned the Big Six providers do not need appeal rights to the Competition and Markets Authority for this Bill, finding that this could unnecessarily delay the successful implementation of the cap.

Labour MP Rachel Reeves, the Chairman of the Business, Energy and Industrial Strategy (BEIS) Committee, said: “The energy market is broken.

“An energy price cap is now necessary and the Government must act urgently to ensure it is in place to protect customers next winter.

“The Big Six energy companies might whine and wail about the introduction of a price-cap but they’ve been overcharging their customers on default and SVTs for years and their recent feeble efforts to move consumers off these tariffs has only served to highlight the need for this intervention.” 

“Energy is an essential good – and yet millions of customers are ripped off for staying loyal to their energy provider.”

Energy UK chief executive Lawrence Slade commented: With a record one in six customers switching last year and over 60 suppliers to choose from, the energy market is changing rapidly and has never offered so much choice.  

“So it’s vital the cap doesn’t halt the growth of competition which is helping customers to find a better deal and save on their energy bills.

13 Feb 2018

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed