The Government’s crackdown on rising energy bills could be gamed by suppliers offering pricier ‘green’ tariffs via a legislative loophole, the industry regulator has warned.
Ofgem warned MPs that its plan to cap standard energy tariffs could be undone if energy companies are able to claim their tariffs carry green credentials in order to charge more for their electricity and gas.
Ministers are preparing to legislate a market-wide cap on all default tariffs in a bid to end “rip-off” energy deals, but low-carbon offerings will not face the same clampdown because costs for green energy are higher.
The potential escape clause has emerged almost a year before the controversial price cap, which many fear could bring a raft of other unintended consequences including lower consumer engagement with the market and reduced competition.
Dermot Nolan, Ofgem’s chief executive, told a parliamentary select committee on Wednesday that customers switching between tariffs could fall under a price cap but said that the switching rate alone would not determine whether the market is working for consumers.
He later admitted that the regulator has not sought the opinion of consumers on the price cap plans but would agree to undertake a survey before it is implemented.
In the meantime, Mr Nolan called for tougher wording in the bill to make clear that companies cannot dodge the cap by making spurious green claims about the energy it supplies.
He added that Ofgem was prepared to issue pre-emptive warnings to companies which may be tempted to exploit the loophole.
“I am saying that loudly and clearly,” he said. “Commercial companies will generally try to make money. To assume they won’t is probably unwise. We will police this as intensively as possible.”
Mr Dermot, who has led the regulator for four years, faced a barrage of questions from the committee over his tenure at the helm and denied that he has acted as a passive bystander to the growing concerns over energy bills.
He added that he had not been awarded a bonus for 2017 and apologised for not acting sooner to bring in the new energy cap for vulnerable customers.
He also promised that any supplier found to be wrongfully using the green-tariff exemption to charge customers above the price cap would be forced to withdraw the deal immediately and repay the excess charges on top of a penalty determined by the regulator’s specialist panel of disciplinarians.