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May vows energy price cap if re-elected
May 8, 2017 / 11:47 PM / 2 months ago

May vows energy price cap if re-elected

Lit hobs glow from an electric cooker in Edinburgh, Scotland October 14, 2008.David Moir

LONDON (Reuters) - British Prime Minister Theresa May pledged on Tuesday to cap household energy prices if she is re-elected on June 8, sending stocks tumbling with the biggest market intervention since the sector was privatised almost 30 years ago.

Energy bills have doubled in Britain over the past decade to about 1,200 pounds ($1,500) a year, putting the biggest providers in the sights of politicians and voters who are already battling rising inflation and limited wage growth.

May, from the centre-right Conservative Party, has previously praised free markets. But she has also warned that she would intervene in industries deemed to be dysfunctional. She said on Tuesday a move to cap energy standard variable tariffs would help about 17 million families.

"Like millions of working families, I am fed up with rip-off energy prices," she wrote in the Sun newspaper, the country's biggest selling title. "I expect (this) to save families on poor value tariffs as much as 100 pounds."

The British market is dominated by six big providers - Centrica (CNA.L), SSE (SSE.L), Scottish Power (IBE.MC), Npower (IGY.DE), E.ON (EONGn.DE) and EDF Energy (EDF.PA) - which account for about 85 percent of the retail electricity market.

The number of consumers switching suppliers rose to a record high last year and the big six providers held 99 percent of the market just five years ago, showing competition is improving.

But an investigation by the competition watchdog in 2016 said households had overpaid 1.4 billion pounds a year in the previous three years due to uncompetitive standard tariffs.

Shares in Centrica (CNA.L), which owns household energy supplier British Gas, fell as much as 5 percent in early trading, adding to the 10 percent fall recorded since the start of the year. SSE (SSE.L) fell as much as 3 percent.

Analysts at RBC Capital Markets said the main reason for Tuesday's share price reaction was that May said the cap would apply to all standard tariffs, rather than just those customers deemed as vulnerable, as previously expected.

Free Markets

The industry has argued that a price cap would wipe out competition and damage investment. Centrica Chief Executive Iain Conn said last month the plan suggested some in May's government did not believe in free markets.

Britain's competition body in 2016 ordered suppliers to cap prices for customers on prepayment meters but the latest plan by May's Conservatives would mark the first time since privatisation of the industry in 1990 that a government intervenes to cap prices across the market.

May's party is around 20 points ahead in opinion polls.

"We believe that price regulation will result in reduced competition and choice, stifle innovation and potentially impact customer service," Conn said on Monday.

The Confederation of British Industry, which represents the country's biggest companies, also voiced concern, saying a "major market intervention" could hit investor confidence.

SSE said the market was competitive, dynamic and fast changing, while Scottish Power said May's party had come to the wrong conclusion and that standard tariffs should be scrapped altogether.

Under the new plan, industry regulator Ofgem will set a maximum cap for standard variable tariffs, which are used by about two-thirds of households.

The policy echoes a pledge made by the opposition Labour Party before the 2015 election. Its plans for a cap on price hikes were lambasted at the time by the Conservatives who accused the then leader Ed Miliband of wanting to live in a "Marxist universe".

For Centrica and SSE, the two most exposed to Britain, a price cap could limit their ability to increase dividends. However, Conn said Centrica's UK energy supply business makes up only a quarter of its operating cashflow.

"If (that business) is impacted it's not going to fundamentally mean that we've got to change direction," he told journalists on Monday.

The Labour Party said the policy lacked any details and did not guarantee that bills would not go up.

Additional reporting Nina Chestney in London and Subrat Patnaik in Bengaluru; Editing by Guy Faulconbridge and Edmund Blair

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