Price cap progresses amidst rising pass-through costs

In the latest development for the default tariff price cap, the government announced on Monday 26 February that it will introduce the Domestic Gas and Electricity (Tariff Cap) Bill to the House of Commons. This next step ensures that the cap remains on course for implementation by winter 2018 – a target described as “tight” by BEIS Permanent Secretary Alex Chisholm last week.

The progression of the price cap has continued the strong political pressure on large suppliers, with government describing recent steps from some large suppliers as “feeble”. These steps have included the removal by five of the large suppliers of standard variable tariffs (SVTs) as the default tariff for some or all customers. Aside from the government criticism the degree of change that these moves represent has been more widely questioned.

Most recently, The Guardian, with data from Octopus Energy, highlighted the similarities in price between the large suppliers’ existing SVTs and the most expensive fix that a customer could be rolled on to. Whilst this is permissible under Ofgem regulation on alternative default tariffs, the attention it has received demonstrates the increasing importance of transparency in the energy market. This is characterised by the growing number of suppliers that offer to automatically move customers onto their cheapest available tariff.

However, the moves by industry participants have by contrast been largely welcomed by Ofgem as a step in the direction to fewer customers left disengaged and subject to SVTs. The regulator have themselves been having to react to changing circumstances in recent weeks. On 7 February, Ofgem announced that it was increasing the level of the existing safeguard tariff cap, partly in response to “policy costs to support low carbon forms of electricity generation”. These increased policy costs will also affect energy suppliers, with both Centrica and Scottish Power identifying the impact of government policy on their respective FY17 energy retail performances. Large suppliers have to give customers 30 days’ notice of price rises and the window to put any increases through in time for the 1 April increase in the safeguard tariff cap is closing fast.

A lot has happened in a year. Twelve months ago we saw SVT increases levied by five of the large six suppliers in the 4 weeks around 1 April 2017. This year the equation is more complicated. The same cost pressures are there, as evidenced by Ofgem’s cap calculations, but with the draft bill before parliament and their own efforts to shift customers from SVTs, there is more for the large suppliers to think about before making a move.

Cornwall Insight publishes a Domestic Tariff Pack which, issued monthly, tracks changes in tariffs each month, including a summary report and excel sheet. The report outlines changes in the cheapest tariffs by supplier, cheapest tariffs by region, regional pricing strategies, wholesale price movements, collective switches, exclusive deals and a series of profiles by supplier. If you are interested, please contact Jacob Briggs at enquiries@cornwall-insight.com.

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