British Gas owner Centrica refuses to rule out legal bid to block energy price cap

British Gas vans
Centrica’s UK boss of home supply Sarwjit Sambhi declined five opportunities to say whether the company would call for a judicial review of the cap

British Gas owner Centrica has refused to rule out a legal challenge to the Government’s proposed price cap on energy bills, while coming under fire from MPs and regulator Ofgem for its heavy reliance on expensive standard tariffs.

Grilled by MPs on the Business, Energy and Industrial Strategy committee, Centrica’s UK boss of home supply Sarwjit Sambhi declined five opportunities to say whether the company would call for a judicial review of the cap.

Earlier this month the Government published draft legislation for an absolute cap on prices until 2020, meaning that it will set a maximum price per kilowatt hour that suppliers can charge.

Mr Sambhi said there was “not sufficient detail” in the bill thus far to declare Centrica’s position. But he added: “A key outcome if the energy bill is put to legislation is that the cap should reflect the cost of actually supplying energy to customers.”

The Centrica boss admitted that 70pc of the company’s UK profits, or around £365m, came from customers on standard variable tariffs (SVTs), which are usually more expensive than fixed-term deals. Ofgem itself believes suppliers earn up to 15pc more from SVT customers on average.

Mr Sambhi also repeated the company’s view that a price cap could “hinder innovation and competition”.

Appearing before the BEIS committee after Mr Sambhi, Dermot Nolan, chief executive of Ofgem, criticised Centrica and its rival SSE for being the slowest of the ‘big six’ energy suppliers to wean customers off SVTs.

“They have not made progress in the way other companies have,” Mr Nolan said.

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Currently a full energy price cap looks unlikely before the winter of next year 

Mr Nolan said that implementing a price cap across the whole energy market would require primary legislation from the Government, rather than using the regulator’s existing powers. Last week he admitted that a full price cap was unlikely before the winter of next year despite the Government’s determination to act quickly.

The Ofgem boss also defended the regulator from MPs’ suggestions that it was failing to intervene to protect customers, noting that around two million households had moved off SVTs in the last couple of years.

Stephen Fitzpatrick, chief executive of Ovo Energy, which hopes to pick up customers from its bigger rivals, said deregulation had failed, and more drastic action was needed to shift customers off expensive tariffs for their own good.

“There’s no safety net for customers that do not shop around,” he said. “It’s not perfect, but the simplest way to engender trust in the market is to set a price cap.”

All the parties giving evidence to MPs acknowledged that identifying so-called vulnerable customers who are most at risk of getting a bad deal on their energy bills was difficult, with insufficient data sharing a key obstacle.

"It is difficult for us as energy suppliers to know which customers are vulnerable," said Mr Fitzpatrick. "You've got 60 suppliers trying to identify vulnerable customers - it’s wasteful."

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