An energy price cap for customers on pre-payment meters could be extended to “vulnerable” people on standard contracts.
Dermot Nolan, chief executive of energy regulator Ofgem, told the BBC: “We’re focusing on plans that we will take forward with some urgency to offer extra protection for some customers.”
That includes “a strong possibility that we’ll extend the price cap currently in place for pre-payment meters to vulnerable customers as well”.
The option is included in a list of proposals published today to try to improve outcomes on energy bills.
“Now the regulator has said it will hold a summit in July with consumer groups on how it could extend the pre-payment meter cap to other households,” adds the BBC.
The Conservative Party pledged in its manifesto to cap energy prices for all customers on standard tariffs, drawing scorn for echoing a Labour policy from the 2015 election it had branded at the time as “Marxist”. However, having failed to secure a majority, that policy was left out of last month’s Queen’s Speech.
“Business Secretary Greg Clark wrote to Ofgem to challenge the regulator to use its existing powers to reduce bills,” says the BBC.
Other proposed measures include a new price comparison website to improve low rates of energy customers shopping around, which would allow people to enter their postcode to see the cheapest deal available in their area.
Ofgem could also force suppliers to write to vulnerable customers and those without internet access to inform them of cheaper deals with rivals.
Both of these options are the subject of trials to see how they affect switching rates.
“Around 5 million people used price comparison websites to search for energy deals last year, but less than half of those people actually went on to switch,” says The Independent.
Elsewhere the regulator is considering capping the charge for installing a pre-payment meter when this is forced on customers – and scrapping charges altogether for some customers.
SSE profit boost adds to call for energy price cap
Calls for an energy price cap have been “strengthened” after one of the so-called “big six” energy firms revealed a boost in profits from domestic energy supply in the past year, says The Times.
Underlying pre-tax profits at SSE rose two per cent to £1.5bn on the back of a five per cent increase in earnings to £261m, despite the company losing a total of 190,000 customers in the past year. The increase reflects a rise in the domestic energy profit margin from 6.2 to 6.9 per cent.
It also comes two months after it imposed a near-15 per cent increase on electricity supply,
which even after accounting for a freeze on gas charges equates to a rise of seven per cent, or £73 a year, for those on standard tariffs.
The news has not gone down well and has strengthened the Tories’ election campaign call for a price cap.
Will Hodson, of switching website the Big Deal, said: “As long as SSE can keep hitting loyal customers with price rises, they will keep reporting higher profits, no matter how many people leave.
“The government’s proposed price cap will rightly put a stop to that.”
Gillian Guy, chief executive of Citizens Advice, said: “SSE’s rising profits will be hard to understand for the millions of their loyal customers whose bills have recently gone up.”
SSE was one of five of the big six to raise prices this year, alongside EON, Npower, Scottishpower and EDF, which raised prices twice in four months.
But SSE’s results perhaps give an insight into how the firm justifies such increases.
It increased its dividend per share to investors in line with inflation, but warned that pressures in the coming year would mean its profit coverage of these payouts would be at the bottom end of its 1.2 to 1.4 times range.
That means in effect it expects lower earnings per share, says the BBC.
SSE also warned that an energy price cap, which could cut bills by £100 per customer, would have “unintended consequences”.
Alistair Phillips-Davies, chief executive, said this week that he believes customers are best served by “competition, not caps”, reports the Financial Times.
Theresa May takes on energy firms with ‘absolute’ price cap
Theresa May is at open war with the energy sector after confirming a price cap that appears to ape a Labour policy from the 2015 general election.
Pre-empting the release of the Tories’ full election manifesto, the Prime Minister writes in The Sun: “I am making this promise: if I am re-elected on June 8, I will take action to end this injustice by introducing a cap on unfair energy price rises.”
She adds that the limit will be “set by the energy watchdog Ofgem” and claims it will benefit the “17 million families on standard variable tariffs”, saving those “on poor value tariffs as much as £100”.
According to the Daily Telegraph, the original idea of a “relative” cap, limiting the difference between standard and cheaper fixed-price tariffs, was scrapped in favour of an “absolute” limit.
Labour said the move would still mean most customers paying more next year, says The Independent, which attacks the plan as “a watered-down version of the energy price freeze announced by Ed Miliband before the 2015 general election”.
Shadow business and energy secretary Rebecca Long-Bailey said it was “not a promise that bills won’t go up year on year” because the cap did not appear to be fixed at current rates.
Industry leaders, including British Gas owner Centrica, argued that price controls stopping companies responding to market forces would lead to the removal of cheaper deals and so higher average prices.
They also said it would result in reduced investment.
It has been reported that energy firms have increased their cheapest prices by an average of a fifth, with some rising by as much as 37 per cent, since price controls were first mooted at the Conservative Party conference last October.
Then, the average cheapest tariff from the “big six” energy firms was £836, but that had risen 20 per cent to £1,001 by 1 May, according to figures compiled by uSwitch, reports the Financial Times.
The most extreme rise has come from SSE, which has increased its cheapest gas and electricity deal 37 per cent higher over the period, from £782.21 to £1,071.93 a year.
Conservative energy price cap: everything you need to know
The Conservative Party have announced that, if they win the election, they will introduce a price cap on energy bills. The news has been met with horror by the energy industry and accusations of copying from the Labour party.
Here’s everything you need to know.
What is the price cap?
The Conservative Party have said a key part of their election manifesto will be to impose a price cap on energy firm’s standard variable rates. That’s the rate 70 per cent of customers pay as a result of not switching onto a fixed-rate deal.
“We would have Ofgem setting the limit, so it would be a cap, so it would be more flexible, it would be able to reflect market conditions – so the market would still have an influence,” the Work and Pensions Secretary Damian Green told ITV’s Peston on Sunday.
“This is a market that is not working perfectly and therefore we are intervening to make markets work better,” Defence Secretary Michael Fallon told the BBC.
Didn’t Labour suggest something similar?
“Ed Milliband feels aggrieved,” says The Times’ leading article. “As Labour leader in 2015, he fought a general election on a policy of energy price controls. Much criticised for it at the time by his opponents, he now finds that the Conservatives are proposing an eerily similar scheme.”
“Where were these people for last four years since I proposed a cap? Defending a broken energy market that ripped people off. Let’s see small print,” the former Labour leader Ed Milliband tweeted when he heard the news.
But, Fallon has said the two policies – the Labour plan was a price freeze, the Tories a cap – are “very different”.
“Really? In their initial impact, the two policies look almost identical,” says Nils Pratley in the Guardian. Both policies allowed for companies to pass on the benefits if wholesale energy costs fall. “If there’s a real difference, it’s that a Tory cap would allow bills to go up if suppliers’ wholesale costs increase…The Tories’ silly spin, one assumes, is born of embarrassment in pinching a Labour idea.”
Would a cap help customers?
Not according to both the energy industry and several experts. The key problem is that the government imposing price controls on the industry will kill competition.
“The government, regulators and especially smaller energy firms are all agreed that regular switching is the key to driving up competition and driving down prices,” says Joe Lynam, the BBC’s business correspondent. But, price caps are likely to reduce the number of people switching supplier “because they may feel changing to be no longer necessary.”
Price caps could also have the opposite effect to what is intended, they could lead to people paying more for their energy.
“If you prevent the ‘milking of the 70 per cent of customers on standard variable rates by imposing a price cap, suppliers will increase the prices of their fixed-rate tariffs,” says Pratley. That will help them maintain profits, and also act as a disincentive for customers to switch – all prices would end up crowded just under the cap, regardless of which supplier you use.
“Price caps may sound like a magic bullet, but heavy-handed price intervention could have the unintended effect of leaving customers worse off,” says Richard Neudegg, head of regulation at uSwitch.com in The Telegraph.
“Instead of lowering bills, previous market interventions in the energy sector have led to lower switching rates and higher prices – a finding backed by the Competition and Markets Authority in its energy market investigation.”
More details of the energy cap pledge will be revealed when the Conservatives release their election manifesto.
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‘Urgent’ energy price cap extension considered
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