Figures in the energy industry and at Ofgem have said Theresa May’s plans to revive the cap on energy bills is virtually impossible to come into effect this winter.
Ofgem has said it would have to wait for legislation to be in force before takes action on standard variable tariffs. In the meantime a limited price cap will be put into force to cover the 1 million most low-income households.
Having promised wide-ranging reforms in the general election, some ministers have put pressure on Mrs May to implement these before winter, with some saying they could be in force within months.
However, a source at one of the big six suppliers has told the Guardian “Implementing the cap on all standard variable tariffs this winter would be “extremely challenging”.
May will publish a draft bill this week, giving the energy regulator Ofgem powers to impose a cap on standard variable tariffs in England, Wales and Scotland. This is thought to affect 12m homes who are on these tariffs.
Greg Clark, the business secretary, has said that “Consumers who are suffering detriment … Could receive early relief” in response to a question of whether caps would be introduced this winter.
Energy companies believe that the process will be much longer and may not come into place until 2018-19.
Legislation is expected to get through parliament with little opposition, as the Conservatives, Labour and the SNP are all in favour of the cap. Although, even after the bill is passed, Ofgem have an obligation to consult with energy firms on the price cap before it comes into practice.
Firms are thought to believe that a cap on standard variable tariffs is now a formality, but are in favour of a relative price cap rather than an absolute cap.
In April, four energy companies backed Conservative MP John Penrose’s call for a relative price cap. This cap would ensure that the most expensive deal would be capped at no more than 6% above the cheapest deal. It is believed that other ministers favour an absolute fix despite concerns that this could put the smaller energy suppliers out of business and leave the larger companies with more market share.
Sources speaking to the Guardian last week, a source inside the big six explained “If you’re going to destroy the market [with a wide-ranging cap], why should we collaborate?”
Despite having the cap figuring in the Conservative manifesto, there was then no mention of it in the Queen’s Speech.May’s announcement at the tory party conference that she intended to press on with her price cap plans drastically hit the stock value of the largest energy suppliers, with Centrica closing at a 14 year low. The company, who owns British Gas, had over 6% wiped off its value, which will come as a further blow after profits had slipped by £9m in 2016 from 2015.
The full impact price caps will have on the market will depend on how wide-ranging the reforms are. Ofgem had originally put forward plans for one million of the most vulnerable consumers on the standard variable tariff not all of the 12 million households.
Suppliers have been reacting differently to the proposals, with some finding innovative ways of keeping customers off expensive tariffs. Ahead of the scheduled changes E.on have already stopped offering the standard variable tariffs, instead making customers choose which tariff they would like to be on. British Gas have hinted that they intend to follow suit hence avoiding the rule changes anyway.
