Ofgem warns suppliers off price hikes

Dermot Nolan has warned energy suppliers that the regulator will look “very poorly” at companies that hike prices when their own costs are not increasing.

In an interview on Radio 4’s Today programme this morning, the Ofgem chief executive said that companies “would be behaving very poorly” if they increased their charges in an environment of flatlining costs.

“If costs aren’t rising and prices are it would be a problem which we would treat seriously,” he said.

Referring to Npower’s recent decision to raise its standard variable tariff by nearly 10 per cent, Nolan said it “seemed a lot”. His comments come amid rumours that British Gas is also due to announce an increase in prices.

National media reports have claimed the Centrica-owned energy company is planning a hike which could increase consumer costs by as much as £100 per year and that this increase will be blamed on the costs of the smart meter rollout.

On being asked to confirm or deny its plans, a Centrica spokesperson told Utility Week: “We never speculate on future pricing decisions”.

In his Radio 4 interview Nolan insisted that well-functioning competition provided the most effective mechanism for keeping prices low. By hiking prices, he said, energy companies risked losing customers to lower priced competitors.

“If a company has raised prices by 10 per cent and loses customers, that company will be punished-and will have a strong incentive not do it in future.”

“Customers don’t have to bear the cost of that decision and can switch easily.” 

Reiterating his position at the launch of Ofgem’s supply cost index a fortnight ago, Nolan said that he saw no “significant” reasons why recent increases in wholesale prices should feed through to higher prices for customers, given that there had been no corresponding falls when energy prices plunged two years ago.

Nolan was appearing to promote Ofgem’s publication of the details of how its prepayment price cap will work.