Ofgem faces shake-up on proposed price cap warns Perry

Ofgem faces a shake-up following the introduction of the energy price cap, Claire Perry has warned in her first public appearance as energy minister.

During a grilling by the House of Commons BEIS (business, energy and industrial strategy) select committee today, Perry said: “The regulator needs to change and use the powers it has. The regulator has to be much more interested in the competitive behaviour of its market and pay attention to green tariffs.

“We will hold them to some very explicit requirements.”

Perry, who was promoted to minister of state for energy and climate change with the right to attend Cabinet in last week’s government reshuffle, was being cross-examined as the committee’s pre-legislative scrutiny of the draft price cap bill concluded.

The bill will give Ofgem the powers to impose a cap on standard variable tariffs (SVTs).

The minister said that reducing the £1.4bn consumer detriment due to inflated energy bills, which was identified by the Competition and Markets Authority in its 2016 review of the sector, was not the sole criteria the government would use to determine whether to lift the cap.

“Consumer detriment will be important but not the sole indicator.

“We don’t want to set an absolute figure because we still want to give the industry the ability to invest, but we would expect the number to come down.”

Perry also told the committee that the cap may be lifted before 2023, the final cut-off date outlined in the legislation, if the industry has cleaned up its act before.

If there had been a ‘very rapid change in customer pricing’ by the time of the first review of the cap, which is likely to be in 2020 if the cap legislation is introduced, she said Ofgem could advise there was no need to keep it in place.

Perry also warned utilities against seeking to ‘game’ the proposed cap by exploiting a potential loophole offered by the government’s decision to exempt green tariffs from the overall cap on SVTs in the bill.

“The worst thing the energy companies could do was to start gaming the system because the level of scrutiny on the market from Parliament and consumer groups is so high.”

She confirmed that the government planned to introduce the price cap legislation ‘shortly’ with a view to passing it by the summer.