The current energy market is broken and penalises customer
loyalty say the Business, Energy and Industrial
Strategy (BEIS) Committee in a report published
today on the Government’s energy price cap draft Bill. The
Committee concludes 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).
The 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.
MP, Chair of the Business,
Energy and Industrial Strategy (BEIS) Committee,
said: “The energy market is broken. Energy is
an essential good and yet 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. 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.”
The BEIS Committee finds 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. The Committee finds 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.
The Committee agrees 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. The Committee also concludes that suppliers 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.
The report also addresses concerns raised by Ofgem that the price
cap could be gamed by suppliers offering pricier ‘green’
electricity tariffs via a loophole in the Bill. The Committee
believes the Government should take these concerns seriously and
amend the Bill accordingly. The exemption, which the Committee
otherwise welcomes, should be extended to green gas tariffs.
The slim evidence that smart meters will have any substantial
impact on customer switching rates leads the report to conclude
that it would be unwise to rely solely on the smart meter rollout
once the cap is lifted to maintain effective competition in the
market.
Once the cap is lifted, the report recommends the Government and
Ofgem should take any necessary measures to ensure that the
elimination of overcharging remains in place in the long term and
that suppliers are not able to go back to their overcharging and
cross-subsidising practices. The report recommends that the
Government provides details on its plans to protect vulnerable
customers from overcharging when Ofgem’s safeguard tariff and the
Government’s price cap are lifted. Engagement measures currently
rolled out should also be maintained to keep encouraging
customers to switch suppliers.
Ofgem and energy suppliers identified that a major obstacle to
helping to protect vulnerable energy customers is the difficulty
in identifying these customers due to insufficient data-sharing.
The Committee welcomes the Government’s plan for a consultation
into data matching to identify vulnerable consumers. The
Committee recommends the Government publish the result of the
previous Cabinet Office consultation on this issue and act on
Ofgem’s recommendation to allow data sharing by amending the
Digital Economy Act.
