Energy firms warned to drop worst-value tariffs or face action

18th October 2017 | Residential Energy

Big energy companies face a regulatory crackdown after the industry watchdog threatened to impose targets forcing suppliers to shift millions of customers off the market’s worst tariffs. Dermot Nolan, the Ofgem chief executive, said customers had failed to act quickly enough and should move faster to take customers off the standard variable tariffs which about two-thirds of households are on.

British Gas and SSE, the two companies that have the highest percentage of customers on such tariffs, were accused of failing to move users on to a better deal. “They have not made progress or initiatives in the way that perhaps some other companies have announced,” Nolan told MPs.

He said that while 2m fewer customers were on standard variable tariffs than a year ago, the market was still not working as well as it should. On the prospect of setting targets to mandate the energy companies to move people off such tariffs, he said, “We are still likely to do that.”

Worst Value Tariffs

Recent plans by Eon and ScottishPower to phase out the tariffs were “not perfect,” he said, but there were signs of progress. Centrica, British Gas’s owner, told the business select committee that it wanted to see the death of the Standard Variable Tariff (SVT) rather than the implementation of a price cap as planned by the government.

“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,” said Sarwwjit Sambhi, the managing director of Centrica’s home unit, which includes British Gas. “Our proposal is to end the evergreen nature of the standard variable tariff.”

Sambhi denied that British Gas was subsidising its cheapest fixed deals by overcharging customers on its standard variable tariff. But under questioning he admitted that 70% of its supply business’s £550m profits last year were from standard variable tariffs, despite them accounting for 65% of its customer base.

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