March 24, 2017 / 2:46 PM / 8 months ago

UK likely to spare energy suppliers a blanket price cap-analysts

LONDON (Reuters) - Britain’s government, which has said it is looking into consumer energy prices, is unlikely to impose an extensive price cap, limiting any market intervention to just the poorest households, analysts say.

After five of Britain’s big six retail electricity and gas suppliers announced steep rises in prices, Prime Minister Theresa May last week said the government would look at ways of improving the market for their customers.

Britain’s Department of Business, Energy and Industrial Strategy said a consumer green paper, which could include proposals for the energy market, would be published in the Spring.

But calls from consumer groups to impose an outright cap on standard variable tariffs (SVTs) for gas and electricity, which around two thirds of British households are signed up to, are likely to go unanswered, with the more likely option a cap on costs for the poorest homes, industry experts said.

“Applying a cap to those on the warm homes discount would seem the most likely option,” analysts at Bernstein said.

Under the warm homes discount energy suppliers give a rebate to customers who are considered ‘fuel poor’, which means their household income would fall below the poverty line if the amount needed to adequately heat and power their home is spent.

“In this scenario all parties win as the government gets credit for the intervention but there isn’t a big detrimental impact on the profits of the companies or on competition,” Bernstein said.

Energy suppliers have also said government intervention could curb competition in the market and discourage people from switching providers.

“If the government decides to intervene it is quite likely there will be unintended consequences,” a spokesman for Innogy‘s (IGY.DE) UK retail supplier Npower said.

“There is a trade-off between more competition, more switching, more players in the market and regulated prices. You can’t have both,” he said.

Utilities have denied overcharging, but last year the Competition and Markets Authority found they had overcharged some British households a total of 1.4 billion pounds a year on average from 2012 to 2015 and ordered suppliers to cap costs for customers on prepayment meters.

Analysts at UBS said extending the prepay meter cap to all fuel-poor customers would be the most likely intervention, and would only cost Britain’s power suppliers around 125 million pounds combined.

This would be a much smaller hit for the companies than if the government decided to impose a cap on all SVTs, as around 70 percent of British households are on the SVTs while around 10 percent are considered fuel poor.

Bernstein forecast an SVT cap would cost the industry a combined 1.6 billion pounds over 2017 and 2018, with Centrica (CNA.L) and SSE (SSE.L) taking hits of 332 million pounds and 232 million pounds respectively.

The companies have the most customers of the big six on SVTs, with 91 percent of SSE customers on the tariffs and 74 percent of Centrica‘s, data from industry regulator Ofgem showed.

The other big-six suppliers are E.ON (EONGn.DE), EDF Energy (EDF.PA), and Ibedrola-owned (IBE.MC) Scottish Power.

Editing by Greg Mahlich

Our Standards:The Thomson Reuters Trust Principles.
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