LONDON April 18: Central heating systems are being turned off across the country as spring takes hold, but winter is coming for energy companies who have recently hiked bills for millions of households, Guardian newspaper reported.
Theresa May said the energy market was “manifestly” not working after a flurry of price rises by the big six companies – British Gas, e.on, EDF, npower, ScottishPower, and SSE – and dozens of smaller suppliers.
A government crackdown is expected as soon as next Monday, most likely in the form of a price cap on the standard variable tariffs affecting nearly two-thirds of households.
While the heads of companies including SSE and EDF talk in public about understanding ministers’ concerns and “engaging constructively” with any government regulation, privately there is frustration within the industry at the prospect of further intervention.
The competition watchdog last summer finished an 18-month review of the market, ruling out a cap in favour of measures to encourage more switching.
This year, it was expected that those remedies would begin to come into effect, removing some of the inertia that makes people on standard tariffs pay more than £300 a year more to heat and light their homes than those on the cheapest fixed deals.
But steep hikes in dual fuel bills by the big six, who control more than 80% of the market, have prompted calls for action by consumer groups and MPs. All but Centrica-owned British Gas have upped their prices, with EDF last week announcing its second rise this winter.
The suppliers have blamed a series of factors, from smart meter installation costs and green energy policies to, most frequently, rising wholesale energy costs.
But the energy regulator Ofgem said in January that while wholesale costs had gone up, they were not large enough to warrant passing on to consumers. Dermot Nolan, Ofgem’s chief executive, said EDF’s second increase was “difficult to justify” because there had not been a dramatic increase in costs since the French-owned company’s last rise.
One smaller supplier told the Guardian that its cost of buying energy had fallen this year.
The prime minister has signalled since last autumn that she is preparing to go further than the competition watchdog’s recommendations and take a more interventionist stance than former prime minister David Cameron.
The energy secretary, Greg Clark, who will be questioned by MPs on Wednesday on what action he is going to take, has repeatedly warned companies that they must treat customers fairly.
May used the Conservative spring conference in March to say that plans would be unveiled soon, because “relying on switching alone to keep prices down is clearly not working”.
The speech had echoes of the former Labour leader Ed Miliband’s promise in 2013 to freeze energy prices. But prices then entered a two-year decline – and he did not have May’s ally, the Daily Mail editor, Paul Dacre, onside.
The Mail’s front page response to Miliband’s proposal was headlined “back to the bad old days” and said “Britain could be plunged into darkness by Labour’s 1970s-style plan to freeze power bills”.
When EDF hiked dual fuel bills by 7.2% last week and government officials promised action, the Mail gave its tacit approval with a frontpage headline of “crackdown on energy rip-offs”.
The timing of the EDF announcement, days before an anticipated intervention, may show that the big suppliers are content with the prospect of a price cap, according to an energy industry source. “It’s that timing – if you were scared of government intervention, you wouldn’t do that. It feels like a goading move,” said the source.
While a cap would dent the big companies’ profit margins per customer, they would still have certainty on their return. For example, the UK’s biggest energy company, British Gas, made £52 profit per dual fuel customer in 2016, compared to £61 in 2015.
What is not clear yet is what form the government’s intervention will take.
Four of the new breed of challenger companies have backed the Conservative MP John Penrose’s call for a relative price cap, which would see the most expensive deals from a supplier pegged at no more than 6% above the cheapest tariff it offers.
But officials are thought to have cooled on the idea and an absolute price cap on standard tariffs is thought more likely.
Any such ceiling will be above a recent cap brought in by Ofgem for homes on prepayment meters, usually used by more vulnerable customers.
For those 4m people, their dual fuel bills have been limited since 1 April to about £1,060 (the exact amount varies by region). By comparison, 1.5m EDF customers on standard tariffs will be paying £1,160 for their gas and electricity from late June.
The bosses of Centrica and SSE have claimed caps could kill competition and hurt consumer choice. But as experts point out, switching figures now are much the same as they were when price caps last existed, 15 years ago.
“Standard variable tariffs could be capped at a level that still allows them to be profitable for suppliers, but that is fairer on loyal customers,” said Richard Hall of the consumer group Citizen’s Advice.