Customers are at risk of being overcharged by energy companies unless new caps on energy bills are put into place soon, MPs have warned.
Initially it was suggested that strong competition within the sector would keep prices down but this approach has not worked according to the Business, Energy and Industrial Strategy Select Committee.
Around five million low income households, many of which use pre-payment meters, have already had bills capped. despite this they have recently been warned that due to the ever-increasing cost of energy production they will find an increase in their monthly payments.
According to the report, the ‘Big Six’ energy companies have been overcharging their consumers for a long time and attempts to self-regulate to reduce bills have failed. The BEIS claim that the current system has failed around 12m customers who are stuck on default tariffs. They criticised the energy companies “feeble efforts” to encourage customers to change to more cost-effective tariffs.
“The Big Six energy companies might whine and wail about the introduction of a price cap,” said Rachel Reeves, the committee’s chairwoman.
“But they’ve been overcharging their customers on default and standard variable tariffs for years and their recent feeble efforts to move consumers off these tariffs has only served to highlight the need for this intervention.”
Energy watchdog Ofgem has also been scrutinised for its failure to utilise its power to help vulnerable customers.
A spokesperson for Ofgem released a statement saying that they were moving forward with new legislation to prevent gas and electricity customers from being exploited. The watchdog said that they were bringing in “innovative solutions” such as a new plan called “collective switching” which would mean customers can band together to get cheaper rates.
There are however some reservations from industry experts and consumer groups who believe that the cap could have negative repercussions. “A widespread price cap could lull energy customers into a false sense of security if they think they are protected by it,” said Richard Neudegg, head of regulation at uSwitch.
Energy UK warned that it was imperative that the cap did not negatively affect the amount of competition that currently exists in the sector.
“It’s also important that the cap accurately reflects suppliers’ costs, most of which are out of their direct control,” said Energy UK’s chief executive Lawrence Slade.
This point was mirrored by the Competition and Markets Authority (CMA) after they undertook a comprehensive review of effects such a cap could have on the industry.
David Gilchrist, a partner at law firm Davies Wallis Foysters (DWF) voiced concerns that an industry wide cap could cause some of the independent suppliers to go out with business which would have dire consequences for competition in the marketplace.
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