Oct. 18 (Bloomberg) -- U.K. Prime Minister David Cameron backed away from his pledge yesterday to force gas and electricity suppliers to charge customers the lowest possible prices, after warnings the move might kill competition.
“We’re going to use the forthcoming legislation -- the Energy Bill coming up this year -- so that we make sure, we ensure, that consumers get the lowest tariffs,” Cameron told reporters in Brussels today. Yesterday, in an off-the-cuff remark in Parliament, he said the government would legislate so energy companies “have to give the lowest tariff.”
Cameron’s spokeswoman, Vickie Sheriff, told reporters in London the legislation may include imposing a duty on companies to inform customers of lower tariffs. Earlier today, Energy Minister John Hayes had told lawmakers the legislation would “help energy customers get the best deal.”
The prime minister’s original announcement was an attempt to respond to public anger after energy providers including Centrica Plc and RWE Npower Plc announced price rises to take effect as winter approaches. Analysts at Deutsche Bank AG published a note earlier today suggesting his plan might be a step toward ending retail competition. The Federation of Small Businesses said it might lead to price-fixing.
Hayes, a member of Cameron’s Conservative Party, was summoned to Parliament this morning to answer an urgent question from the opposition Labour Party on the policy, which the prime minister, to the surprise of aides, set out during his weekly questions session. The energy minister said he’ll discuss it with gas and electricity companies “as a matter of urgency.”
Hayes’s boss, Energy Secretary Ed Davey from Cameron’s Liberal Democrat coalition partners, was meanwhile speaking elsewhere in London about encouraging customers to switch suppliers to find the best deal.
“Was the prime minister making it up as he went along?” Caroline Flint, Labour’s energy spokeswoman, asked Hayes. “For the government to spend a day pretending they have a policy they have no intention of implementing is no way to run the country.”
Hayes said a number of options are being considered, including a voluntary agreement with the industry, as part of the Energy Bill.
Asked what he expected the effect of the bill would be on tariffs, Hayes said he expected “considerably fewer than there are now.”
Talking to reporters at a meeting organized by the Confederation of British Industry, Davey sidestepped questions calling for detail about Cameron’s proposals.
“We’ve been in discussion within the department and across government about other measures we can take in the energy bill and we’ll be detailing those in the next few weeks,” Davey said. “I do think we need to strengthen the competition in retail energy markets and wholesale energy markets, and I think that is what the prime minister was talking about.”
Cameron’s office said later that one option being looked at is for customers who are on a variable tariff and pay by direct debit to be informed by their provider that they are going to be automatically switched to the lowest appropriate tariff. Customers would be able to opt out if they want to.
Davey also said officials are looking into how to improve switching arrangements when customers want to change supplier, building on an agreement he and Deputy Prime Minister Nick Clegg reached with companies in April.
The Deutsche Bank note highlighted a statement by price-comparison website uSwitch that Cameron’s planned move “would effectively kill competition by removing any point in switching.”
Should the rate at which customers switch fall, “even where there are some price differentials between suppliers, it may become an accepted view that competition in itself will not regulate prices and profits,” London-based analysts Martin Brough and James Brand wrote. “The pressure for an explicit residual price cap or regulation of profits may then rise.”
FSB Chairman John Walker said in a statement on the organization’s website that “there is a very real risk that forcing energy companies to put customers on the cheapest tariff could lead to price fixing and erode what little competition there is in the market.”
The draft Energy Bill, published earlier this year, focused on creating incentives for generating companies to replace and increase capacity, and didn’t contain Cameron’s proposal. Davey said today it’ll include rules that nuclear and renewable-energy developers say they need to fund new power plants in an effort to unlock investment for more electricity generation.
The energy secretary said he will publish the bill within the next month, allowing lawmakers to vote in Parliament before their Christmas recess. It will include a “capacity market” ensuring utilities are compensated for maintaining extra supplies and “contracts for difference” that benefit nuclear providers.
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