“Millions of customers are ripped off for staying loyal to their energy provider. An energy price cap is now necessary and the government must act urgently to ensure it is in place to protect customers next winter,” said Rachel Reeves MP, chair of the Business, Energy and Industrial Strategy (BEIS) Committee. She said energy companies might “whine and wail” about the price cap, “but they’ve been overcharging their customers on default and SVTs for years”.
Reeves was commenting as the committee published a report on legislation that would cap energy prices.
The BEIS committee said energy companies had taken advantage of a business model that saw ‘sticky’ customers overpay, while targeting cheap deals at customers who switch. As a result 12 million customers were stuck on poor-value tariffs. The committee said, “no one should be penalised disproportionately for not engaging with competition, nor should it be a requirement that consumers constantly defend themselves against excessive charges.”
The ‘big six’ energy companies had “brought the introduction of a price cap on themselves” by raising prices in 2017 and failing to take effective action against “overcharging for years”, said the committee. It said suppliers should not have appeal rights to the Competition and Markets Authority over the bill, because that would delay implementation of the cap, and it called on the government to ensure the bill became law before the summer.
The Committee was also not convinced that the advent of smart meters would increase switching rates. It said there was “slim evidence that smart meters will have any substantial impact”.
The committee also said it was concerned that network companies were making excessive profits and praised to “monitor closely” the next price control. It said, “We welcome Ofgem’s announcement that energy networks should prepare for tougher price controls in the next phase.” and signalled a potential further inquiry into the issue.
But some warned that a price cap would have unintended consequences. David Gilchrist, head of gas and electricity and partner at law firm DWF, said: “Wider reforms are needed to improve the market for customers and encourage more switching – and ultimately drive down energy prices across the board. This could include the wholesale market, which is currently very closely integrated with the Big Six – with competition faltering as a result.
“Challenger suppliers aren’t blessed with the resilience of the Big Six…If the price cap is set too low, challenger suppliers will be unable to make margins over a longer period – forcing them to drive prices up to survive. And, inevitably, as wholesale prices spike during the cold winter period, at least a couple of these suppliers will go bust.”