Big Six energy firms criticise price cap plans as harming competition and say customer engagement is the real issue

 
Rebecca Smith
Around 18m households are on SVTs or other default tariffs
Around 18m households are on SVTs or other default tariffs (Source: Getty)

Bosses at the Big Six energy firms today hit back at government plans for caps on energy tariffs, telling MPs the market had become increasingly competitive in recent years and would be hindered by a price cap.

Prime Minister Theresa May pledged in October to end "rip-off energy prices", proposing a price cap on standard variable tariffs (SVTs) and other default tariffs.

Today, energy bosses were grilled by members of the Business, Energy and Industrial Strategy Committee over the draft tariff cap bill and the reasons behind its proposal.

Read more: Here's why energy caps are clumsy and counterproductive

"We want a healthy competitive market that customers trust, and we believe that competition is the best way of serving that, rather than price regulation through a cap," SSE's chief commercial officer Stephen Forbes told MPs.

He said a cap would result in worse outcomes for customers, pointing to an investigation by the Competition and Markets Authority (CMA) two and a half years ago.

"In fact, competition's increased since then. We've now got over 60 suppliers competing in the market, we've got five million customers who have switched energy supplier this year to date. That's a 14 per cent increase," Forbes said.

Forbes added: "I think differentials do play an important role in the sector. The basic tenet of competition is that customers need an incentive to switch and to move supplier."

A BEIS spokesperson said: "The Competition and Markets Authority’s investigation into the retail energy market found domestic customers of the Big Six suppliers were over-paying £1.4bn a year. We are taking action to protect people and have published draft legislation which will temporarily cap prices while the market becomes fairer for consumers."

Engaged customers vs disengaged

Peter Kyle, Labour MP for Hove, cited the example of business secretary Greg Clark, who had previously told the committee he was too busy to switch supplier. Kyle asked whether it was fair some customers were punished for this, while others were paying less for the same product.

E.ON's chief executive Michael Lewis said:

I think it's right that somebody who engages with the market and searches for the product that's right for them gets a better deal than the person who doesn't, and that's what market is all about; getting that engagement.

Lewis also said that once vulnerable customers had been taken out of the market and protected, the question was one of engagement, "not one of price", and that improvements were being made by firms on this front.

However, SSE still said 72 per cent of its customers were on SVTs, E.ON said 61 per cent were on SVTs, while 65 per cent of Centrica customers were on SVTs, and each said a chunk of those customers had been on the tariffs for more than three years.

Contacting customers

While challenger supplier First Utility said it communicated with customers 13 times a year with what better tariff offers were out there, the members of the Big Six said they contacted customers four times as a base, and six times in the case of Centrica.

BEIS Committee chair Rachel Reeves said nobody was stopping the firms following in the footsteps of First Utility.

Speaking to Centrica's managing director UK Home Sarwjit Sambhi, Reeves suggested that the company was happy to have a large wave of customers on SVTs "because that's where you make your profits".

Sambhi said: "I don't think customers would appreciate being contacted on separate occasions 13 times."

He then said that First Utility had monthly billing for all of its customers which enabled the firm to contact customers as often as it did.

Sambhi added: "If we could have monthly billing for all of our customers then we would be contacting them every month, and that is why we want to accelerate and push hard on the implementation of the smart meter programme, because then we can."

Read more: Big Six firms are facing questions on the energy price cap this week

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