Ofgem threatens energy suppliers to either shift customers into cheaper deals or face action

October 10th, 2019

The energy market is facing extreme pressure as the Prime Minister announced the draft law last week. Following closely is the industry energy regulator Ofgem which threatened to take action against suppliers that don’t move customers from expensive SVTs. It has ordered the power companies to pace up action to shift customers from Standard Variable Tariffs into cheaper energy deals. As around two-thirds of customers are on SVTs, it is forcing suppliers to take quick action to suffice the call of the hour.

Ofgem accused British Gas and SSE, the two Big Six energy suppliers with the highest number of customers on SVTs, of going slow in their action. Dermot Nolan, the Ofgem chief executive told MPs that “They have not made progress or initiatives in the way that perhaps some other companies have announced.”  In response to the idea of setting fixed targets for these UK energy suppliers he said that “We are still likely to do that.”

He also mentioned that the latest arrangements in this direction by Scottish Power and E.On suggest positive progress but are not perfect. While the government’s legislation to implement the energy price cap may take a year, the Big Six gas and electric suppliers are planning a smart move to abolish Standard Variable Tariffs. This is their way of dealing with the idea of offering cheaper energy deals to their customers.

Sarwjit Sambhi, the managing director of Centrica said that “In our view there is an issue with engagement but we don’t think the solution is price caps, we think price caps will hinder competition. Our proposal is to end the evergreen nature of the standard variable tariff.” He denied allegations about arranging finance for its cheapest fixed deals by overcharging through SVTs but agreed that 70% of its customers are on SVTs, which is a big reason of their £550m profits last year.

While everyone is looking up to Ofgem to implement the energy price cap announced by Theresa May, Ofgem defers in opinion and demands government legislation. Dermot Nolan explained by that “Before setting any final cap I’m afraid we would need royal assent to have that degree of certainty.” Ofgem is being extra cautious as the Big Six gas and electricity providers have threatened to take legal action if the regulator imposes price caps without legislation.

Amidst all this, all the customers can do is to wait for the right plan of action and its implementation. While a smart move would be to switch to cheaper energy supplier, most of them show no sign of movement from the SVTs. While the vulnerable customers cannot pay for the expensive energy tariffs, it is the loyal customers that are making things difficult. Even when they have a chance to choose better options and switch to cheaper energy supplier, they are not doing so.

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