October 4, 2017 / 11:51 AM / 2 years ago

May orders energy price cap, shares tumble

MANCHESTER, England (Reuters) - Prime Minister Theresa May said she would impose a price cap on the energy market to help millions of households struggling with rising prices, hitting shares in the leading providers hard.

May had proposed a price cap on the sector earlier this year, the biggest market intervention since privatisation almost 30 years ago, but the plan was thrown into doubt after her ruling Conservatives lost their parliamentary majority in an election in June.

Energy bills have doubled in Britain over the past decade to an average of about 1,200 pounds a year, putting the biggest providers in the sights of politicians.

“While we are in favour of free markets we will always take action to fix them when they are broken, we will always take on monopolies and vested interests when they are holding people back,” May told the Conservative Party’s annual conference.

“One of the greatest examples in Britain today is the broken energy market,” she said, adding that a price cap would help end “rip-off energy prices”.

Britain’s energy market is dominated by the so-called big six providers — Centrica’s British Gas, SSE (SSE.L), Iberdrola’s (IBE.MC) Scottish Power, Innogy’s npower (IGY.DE), E.ON (EONGn.DE) and EDF Energy (EDF.PA), which account for about 85 percent of the retail electricity market.


The announcement wiped more than 900 million pounds off the value of the two British listed companies Centrica and SSE alone.

Shares in Centrica hit a near 14 year low of 177.8 pence per share and were down 6 percent at 179.3 pence at 1510 GMT. Shares in SSE, Britain’s second largest supplier, fell by as much as 4 percent.

E.ON was the worst performer in Germany’s DAX index of 30 leading stocks, shedding 3.4 percent in afternoon trading in Frankfurt, while competitor Innogy fell by 2.1 percent.

Shares in EDF and Iberdrola were little changed.

SSE said it would look carefully at the proposals.

“SSE believes in competition not caps, so if there is to be any intervention it should be simple to administer, time-limited, and maintain the principles of a competitive energy market to best serve customers’ interests,” the company said.

May’s office said the cap would apply to so-called standard variable tariffs (SVTs) which are basic rates that energy suppliers charge if a customer does not opt for a specific plan.

Around 70 percent of households are on SVTs and data published by energy regulator Ofgem in December showed 91 percent of SSE’s customers were on a SVT, along with 74 percent of Centrica’s British Gas customers.

E.ON and Scottish Power, which have fewer customers on SVT’s both called on the government to scrap them.

Analysts at Bernstein said the level at which the cap is set would determine its ultimate impact on the companies.

A price cap of 1,100 pounds a year would still allow efficient firms to make a margin but a 1,000 pound per year cap would “push the industry into a loss of 700 pounds million,” the analysts said.

Ofgem said SVTs offered by the big six in August were on average almost 320 pounds per year more expensive than their cheapest tariffs.


Earlier this year the government ordered Ofgem to act on the issue of high bills and the regulator is in the process of consulting on a measure which would impose a price cap for the most vulnerable households.

May’s office said Ofgem would be responsible for setting the new cap which would be a temporary measure kept under review, while Ofgem said it will work with the government “to better protect consumers on poor value deals.”

British business groups criticized the cap, with blue-chip lobby group the CBI calling it “an example of state intervention that misses the mark.”

However the challenger small energy firm OVO Energy, which has around 800,000 customers, welcomed the decision.

“This intervention will stimulate innovation and promote efficiency that will benefit millions of customers,” said Stephen Fitzpatrick, OVO chief executive.

Additional reporting by Susanna Twidale and Alistair Smout in LONDON, Hakan Ersen in FRANKFURT; Editing by Keith Weir

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