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Energy price cap could be a muddle that satisfies no one | The Guardian

Let’s be generous to the Ofgem chief, Dermot Nolan. He’s produced a respectable fudge, as he was told to. Parliament gave him the tricky job of setting an energy price cap at a level that prevents “rip-off” pricing but still encourages customers to switch suppliers, goals that pull in opposite directions. A figure of £1,136 – being the proposed upper limit for a standard variable tariff for a typical dual-fuel customer – looks as good a stab as any.

It’s slightly embarrassing that the average saving of £75 for punters on default deals is lower than the £100 that Theresa May had unwisely trumpeted. But wholesale energy prices move all the time, so the more relevant figure is the overall savings to consumers, which Ofgem put at £1bn, or slightly more than the big six made in profits last year. Think of the price cap, then, as a command to companies to shed costs, meaning jobs.

The obvious danger is that suppliers also whack up the prices of their fixed-price tariffs for active switchers. If all prices end up clustering around the Ofgem-mandated maximum, even the current feeble state of competition will evaporate. The test will be levels of switching. Last year 17% of customers moved. If the rate plunges from that level, this supposedly temporary exercise will be a flop in its own terms.

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Energy price cap could be a muddle that satisfies no one | Nils Pratley | Business | The Guardian.