Nolan anticipates Npower customer exodus

Regulator “hopes” supplier price rise will hit profitability

Dermot Nolan has told MPs that he hopes that Npower’s bid to hike prices for its standard variable customers is not a “profitable strategy”.

Npower sparked outrage last month with its announcement that it was increasing its standard variable tariff rate by 9.8 per cent.

The Ofgem chief executive gave evidence yesterday to the BEIS (business, energy and industrial strategy) select committee’s investigation into the CMA (Competition and Markets Authority) energy market review.

Responding to questioning on Npower’s planned price hike, he said: “The hope would be that they can’t frankly and then lose significant amounts of customers and the price rise is not profitable.”

He said that such an outcome would supply “some evidence” that competition in the energy market is working.

Nolan added later in the session that he hoped the German owned company’s inflation-busting price rise would not be a “profitable strategy”.

Pointing to Npower’s underlying profit levels, which fell 29 per cent from £664 to £470m according to results published last week, he said he “suspected” that the company faced higher costs than some.

Nolan also expressed regret that the regulator had “not acted sooner” to cap prices on pre-payment meters, which he told the committee that Ofgem had the power to do as part of its licensing conditions remit.

Overall, he said that the growing market share for suppliers challenging the so called Big Six provided ‘some evidence’ that competition was working in the domestic energy market place.

But he dismissed Npower’s attempt to partly deflect the blame for its price increases onto the costs of implementing government green energy and smart meter roll out policies.

He pointed to analysis in the regulator’s recently published supplier cost index, according to which policy mandates were responsible for 2.8 per cent of the 15 per cent year on year increase in costs.

Lawrence Slade, chief executive, Energy UK, told the committee that energy companies faced a “different” number of policy related issues compared to other industries. As a result, he said that utilities could only control about half the bills they charged.

The committee’s chairman Iain Wright criticised big energy companies for taking their standard rate customers for granted.

He said: “They feel complacent in being able to put their prices up an astonishing amount and thinking people won’t switch. The market not working for customers.”

He added that Slade’s description of companies allowing customers to languish on standard rates as a “picture of the past” “defied credibility”.

His fellow committee member, the Labour MP Albert Owen, said the committee “deserved more respect” than it had been shown by Npower when it failed to reveal that it was planning to hike prices two days after it appeared at the first hearing of the committee’s CMA investigation.