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MPs fear regulator will not ‘get it right’ on energy price cap

Conservative party backbenchers have cast doubt on whether the energy regulator is capable of setting a fair energy price cap for standard energy tariffs over the coming winter.
Through new legislation expected by the summer Ofgem will be tasked with capping the standard variable tariffs used by 11 million homes across the UK by calculating the costs faced by energy suppliers, while making room for competition.
Conservative MP John Penrose described price caps in a pre-legislative debate as “dangerous things, fiendishly difficult to get right” which could “drive suppliers away if the price is set too low" or "gouge customers if it is set too high”.
“They simply won’t get it right across a large proportion of the market,” he said.
Ofgem is expected to reset the price cap every six months by taking into account shifting supplier costs, but Mr Penrose said the cap should use a formula so it can shift in line with market changes as they occur.
MPs fear regulator will not ‘get it right’ on energy price cap

Greg Clark, the Business Secretary, said he is confident that Ofgem will use its power to halt 'intolerable' price hikes

Credit:
 Rui Vieira
A spokesman for the regulator said Ofgem is still devising its methodology for the cap and will need to consult the industry on its proposals once the bill has become law.
Ofgem could take as long as five months to consult on its price-setting plans which could push the start of the cap to the end of 2018, meaning customers will not reap the benefit of the policy as temperatures dip through autumn and into December.
Mark Pawsey, another Conservative MP, heaped further doubt on the regulator by calling into question Ofgem’s track record by saying “it hasn’t been exactly brilliant” in using its existing powers.
Earlier this year Ofgem boss Dermot Nolan apologised for failing vulnerable consumers, and said he wished the body had acted sooner to cap their bills.
Ofgem has also come under fire by critics who believe that it has set revenues for energy network operators too high, allowing for bigger than expected profits at the expense of energy consumers. In response the regulator has warned that it will be tougher in the next review.
MPs fear regulator will not ‘get it right’ on energy price cap

Ofgem has come under fire in recent months but will hold responsibility for Government's energy price cap later this year
Greg Clarke, the Business Secretary, responded to the doubts saying that he is “confident” that Ofgem will use the legislation to correct “an intolerable situation”.
He said the price cap will be a temporary measure which will be set at a level where competition can still take place while protecting customers from “an ever increasing differential” between the energy price paid by customers who shop around for a better deal and those who remain on default standard tariffs.
The Labour party, which originally proposed a market intervention, said the Government’s move to introduce the price cap legislation is a “sticking plaster” which does not go far enough to fix the “broken” market.
“There are much deeper problems in the UK energy market,” said Labour’s shadow energy minister Rebecca Long-Bailey. She vowed that a Labour government would tackle rising prices, bumper shareholder payouts and unjustified profits rather than “tinker around the edges”.
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