September 2017 – Energy Bills

September 2017 – Energy Bills

Thank you for contacting me about energy bills.

I do share your concerns over increases in prices. Suppliers are protected from recent fluctuations in the price of wholesale energy as they buy their energy up to two years in advance, and prices remain significantly lower than in 2015. I therefore expect energy companies to treat their customers fairly.

As you are aware, the Government made a proposal to extend the price protection currently in place for some vulnerable energy consumers to more of those on the poorest value tariffs. Rest assured, the Government is committed to doing so and the Energy watchdog Ofgem has accepted the call for further action.

More specifically, the Business and Energy Secretary, Greg Clark, has written to Ofgem asking what action the regulator intends to take to safeguard customers. Ofgem has committed to taking prompt action, in consultation with consumer experts, to develop proposals including a safeguard tariff. The Government wants to see rapid progress on this commitment and has not ruled out taking further action if necessary.

There is already a prepayment price cap in place protecting households least able to benefit from competition. On 1 April 2017 a prepayment price cap came into force protecting over four million households using pre-payment meters. The temporary cap, which will remain in place until the end of 2020, is expected to reduce bills across Britain and will save the average household £80 a year.

 

While we certainly need to ensure all consumers can benefit from competition, and make sure major suppliers do not behave like a cartel, it is my general view and experience that over-use of price caps ultimately ends up harming the consumer.  Because companies are not able to raise rates when energy is expensive, they hedge against this by also not passing on savings – meaning that when the price would (and should) be below the cap, consumers do not experience a reduction in their rates.  This ends up costing more than it saves as companies will not take risks with their bottom line.  I therefore welcome the move for targeted and temporary caps, to protect consumers who need our intervention, as opposed to distorting the market to the detriment of all consumers.

Thank you again for taking the time to contact me.