Energy firms warned by watchdog of 'radical' change ahead

Ofgem tells suppliers to prepare for range of reforms, including switching customers automatically to better deals

Electricity and gas companies have been bluntly warned that “change is coming” by the head of the UK’s energy regulator, who indicated that Theresa May’s proposed price cap was just one of the reforms planned to help consumers with their bills.

Energy suppliers were put on notice that they face a range of radical reforms, including a potential rule change that would automatically switch customers to better deals without them taking action.

“Change is coming whether the industry likes it or not,” Dermot Nolan, the chief executive of Ofgem, told energy firms in an impassioned speech, the tone of which sometimes bordered on anger.

Nolan told industry representatives there was no point challenging price caps or the other reforms he was talking about. “To those who say they feel can’t do this in a world of more price regulation, I would say think again. These kinds of reforms are overdue. I don’t think the regulator or parliament will take no for an answer. So you might as well as embrace it, because change is coming.”

Price caps for millions of households were just one of the big changes ahead, Nolan said, as he revealed Ofgem was considering a shakeup of rules that would allow new entrants into the market and even enable a customer to have more than one supplier.

“One way to proceed is protecting consumers through a process of collective switching,” said Nolan, of a proposal to automatically shift thousands of people at a time off poor-value tariffs.

“Rather than customers having to make an active choice as with conventional collective switches, the switch could be made on their behalf without them having to do anything. It’s a bit like allowing better deals to find customers, rather than customers having to find the better deals themselves.”

Ofgem is at the very early stages of exploring the idea, which it admits would require primary legislation and buy-in from consumers.

A spokesperson for one energy supplier said they were bemused by the suggestion, and that there was a risk customers would be upset at being switched to a company they had never heard of.

The regulator’s address to an industry conference on Thursday comes in addition to the prime minister’s price cap, which is seen as the biggest intervention in the market since privatisation.

Nolan said Ofgem thought “radical” changes might be needed, and that the regulator had been considering whether the model of having energy suppliers at the heart of the market was “still fit for purpose”.

He said one of the most exciting emerging areas was peer-to-peer energy trading, where a householder could buy energy directly from a local power plant or electric car company. Such technology could allow customers to bypass traditional energy suppliers and even make them obsolete, he suggested.

“Will these changes make suppliers’ role as middlemen less relevant and potentially even redundant?” he asked.

He also fired a shot across the bows of companies which have suggested they might not cooperate with Ofgem over a price cap for a million vulnerable customers because of May’s plans for a much wider cap. Failure to work with Ofgem on the plans would be “spectacularly ill-advised”, he said.

The big-six company E.ON would not be drawn on whether it would mount a legal challenge to the wider cap.

Michael Lewis, its chief executive, said he would not answer such a hypothetical question. The British Gas owner, Centrica, also repeatedly refused to tell MPs on Tuesday whether it would rule out a challenge in the courts.

Lewis said there was a real possibility that a wide cap would damage competition and reduce switching so much that it could become permanent. “If prices converge, there is a real danger the cap will need to be maintained in place.” The cap would last for a maximum of five years under draft legislation published last week.

One of the smaller suppliers said that if the cap was set too low, big energy companies may shift jobs overseas.

“When you start looking at the unintended consequences, we may suddenly find 20,000 jobs go offshore [to maintain margins and cut costs],” said David Bird, the chief executive of Co-Operative Energy.

The company’s plans to create more community-owned green energy generation could be put at risk too, he said. “If we make no money in the supply business we won’t be able to do that.”

Citizen’s Advice said that it received more calls about energy companies that any other industry apart from secondhand cars firms and builders. The group said it expected a wider cap would not take effect for at least 15 to 18 months.


Adam Vaughan

The GuardianTramp

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