British Gas left reeling by energy cap proposal? Don't believe the hype

Owner Centrica has blasted the plan ahead of its AGM, while admitting that it's lost 261,000 customers. But boss Iain Conn might not need to be as worried as he looks 

James Moore
Chief Business Commentator
Monday 08 May 2017 09:12
British Gas owner Centrica has lost more than a quarter of a million customer this year
British Gas owner Centrica has lost more than a quarter of a million customer this year

It’s fight night, and the top bout on the undercard of the General Election – Government vs energy industry – is into round two.

British Gas owner Centrica came out punching, with a right jab aimed at Conservative Party policy, having hit the canvas in round one as a result of the latter's plans for an energy price cap.

“Centrica does not believe in any form of price regulation (well duh). Evidence from other countries would suggest this will lead to reduced competition and choice, and potentially higher average prices,” the company said, while claiming that it has put forward alternative proposals (without giving any details).

A telling blow? Um, no. It’s not hard to counter Centrica's line of attack.

The problem with Britain’s energy market is that the “competition and choice” it references have largely been illusory up until now.

Tariffs that almost no one can understand, an ability to switch provider that (still) might prove far more trouble than it’s worth, shabby customer service that sees frustrated customers routed to call centres whose staff can’t help. This has been the norm up until very recently.

Of late (as Centrica’s trading update shows) things have improved a bit in response to prodding from the regulator OfGem and amid a political and media storm.

British Gas lost 261,000 domestic customers in the year to date “reflecting the planned roll-off of collective switch tariffs and a greater shift towards enhanced segmentation and customer value, not only volume.”

No I don’t know what the bit in quotation marks, culled from Centrica's statement, means either, perhaps because it’s not supposed to mean anything.

In plain English, the real cause of British Gas’s problems is the emergence of a number of new providers who have entered the market to nip at the heels of the big six energy providers (of which it is one).

However, if that on its own was enough to improve things for the majority of customers, and particularly those on lower incomes, there wouldn’t be any need for any political intervention.

So to the cap. I’ve written before that the policy is a cynical attempt by the Conservatives to grab some pre-election headlines and make it look as if they’ve got the interests of voters at heart when the evidence of the last two years proves otherwise.

The best way to fix the energy market would be to develop a functioning national energy strategy, and to go in hard with it.

That said, if the cap is set sensibly, it could actually be a more powerful weapon against an industry in need of a couple of sharp jabs than the price freeze proposed by former Labour leader Ed Miliband, a policy the cap is in blatant imitation of.

The problem with the freeze has been much discussed: It was announced a couple of years before the election that Mr Miliband lost, and the energy companies raised prices in anticipation of it.

That is, in theory, harder to do than with a cap because you don’t know where it will be set. A cap, as its proponents have argued, is flexible.

It could be used to attack any shenanigans by the big six in anticipation of it. But will OfGem, which will be handed the responsibility for setting it, prove willing to do that?

Regulators in Britain too often make a big fuss about being tough when they’re not being anything of the sort. Often (I would suspect) because their political masters don’t want them upsetting big companies with big cheque books too much.

If the cap is weak it gets us nowhere. It becomes a mirage that the energy companies help to perpetuate by screaming blue murder about it.

The regulators say they’re being tough, the Prime Minister crows at PMQs, the consumer continues to get stiffed.

A metaphor for the way things work in modern Britain, really.

Right now Centrica looks like its reeling. The shares have been struggling, analysts have been urging their clients to avoid the company, it has even been losing customers.

But let’s see if the Government really intends to hit it hard at the business end of this fight. Right now, I’m sceptical and you should be too.

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