Editor’s letter: Energy suppliers must make the best of a very bad position

Fighting an energy retail price cap is now a lost cause, but there remains a chance for suppliers to shape their yoke for reduced discomfort

The inevitable has come to pass. A Conservative manifesto commitment to cap energy prices was a long time coming – as outgoing BEIS committee chair Iain Wright complained to Utility Week in his recent interview. 

Its confirmation was received badly by most large suppliers and their shareholders as share prices plummeted.

Frustration and anger within the energy industry is understandable. But there is now little to be gained by suppliers maintaining staunch opposition to the move.

Big six leaders such as EDF’s Vincent de Rivaz and Centrica’s Iain Conn have, both publicly and no doubt privately, made their concerns about the impact that a cap will have on competition, profitability, and consumer experience abundantly plain. But they have failed to alter the course of the government’s populist agenda. MPs on both government and opposition benches are convinced that energy retail is dysfunctional and that the vast majority of suppliers are failing on cost transparency.

While the election campaigning plays out, utilities should ­recalibrate their PR, policy and strategy teams to try to achieve ­damage limitation.

Assuming that election predictions hold true this time round and there is a resounding Conservative victory, there is little detail yet as to what the party’s price cap will actually look like. Odds are on for a straightforward maximum SVT charge, adjusted on a six-monthly basis, in the same way as the current prepayment meter price cap works.

But there are voices advocating the alternative of a cap on the differential between most and least expensive tariffs.

Quite apart from the cap structure, it is unclear what duration the Conservatives envisage for their intervention. A blunt, permanent cap on prices would be a worst-case scenario. It would be received as a death knell on competition by many suppliers, who point out that their slim-to-zero profit margins will be undercut by the saving of £100 per household that the Conservatives have seemingly plucked from the air.

There is also little visibility regarding what action may accompany a price cap to address market issues. The Tories have yet to set out this stall, instead content to undermine the efficacy of the CMA’s recommendations. But a strategy of some kind must be forthcoming. Without it, a temporary cap would be pointless. 

Labour’s Alan Whitehead has told Utility Week his party has a clear two-pronged strategy for merket reforms to accompany a cap – the reintrouction of an energy trading pool system and the creation of an Ofgem-administered database of registered tariffs with itemised component costs. Perhaps the Conservatives will paint these ideas blue too.

Whatever transpires, the opportunity to work closely with policymakers over the coming weeks and months to influence the shape of an unpopular intervention is now all that is left to suppliers hoping to make the best of a bad situation.