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Energy price cap implications ominous, former regulators say

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Energy experts have warned the government not to intervene in the market by capping prices.

According to five former energy regulators, such a move would have an "adverse effect" on the market and could have "ominous implications".

Their intervention comes amid speculation that the government is poised to announce price controls for customers on standard energy tariffs.

Last week, the prime minister said she would set out energy plans very soon.

Theresa May stated that the energy market was "manifestly not working for all consumers".

'Counterproductive'

The group of former energy watchdog executives warned that previous high-profile interventions, including banning doorstep selling and simplifying the number of available tariffs, had not resulted in consumers being more engaged in the market.

"Regulatory interventions have been counterproductive", they said, and "the temptation to intervene further should be resisted".

They questioned a core finding of the two-year Competition and Markets Authority's (CMA) energy market investigation - that the large firms were making excess profits to the tune of £1bn to £2bn a year.

The group of former regulators said that this was in fact a measure of how much lower prices could be if larger suppliers were more efficient.

They added that consequently the CMA itself stepped back from proposing a wide-ranging price cap, as such a measure would result in substantial losses for the sector.

"Retail energy profits are not excessive, loyal customers are not being ripped off, and there is no need to pressure consumers to be more active," the group said.

The former regulators, Prof Stephen Littlechild, Sir Callum McCarthy, Eileen Marshall, Clare Spottiswoode and Stephen Smith, also warned of unintended consequences should the government opt for a price cap.

"Retail energy price controls would have an adverse effect on a market that is working better than is generally realised - and would have ominous implications for other markets."

Ripped off

While most standard tariffs remain lower than they were three years ago, most of the main suppliers have announced or implemented price rises in recent weeks.

That has put pressure on the government to act.

Last week, 50 MPs backed a motion from the Conservative MP John Penrose calling for immediate action from the government to help the 20 million homes on standard variable tariffs.

He claims millions of customers are being "systematically ripped off" and wants to see a "relative price cap" which would require energy firms to price their more expensive standard tariffs at just 6% above their cheapest deals.

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Responding in the Commons, Energy Minister Jesse Norman said that the CMA "did important work in highlighting how much consumers are currently losing out on".

He said that recent price rises had underlined the fact that the majority of consumers pay more than they need to.

And he raised expectations that the government was preparing to act.

"We believe that current practice, as it stands, is not acceptable and we will set out proposals to address these issues shortly."

Price cap

The CMA investigation proposed a price cap for about four million households that use pre-payment meters.

Consumer body Citizens Advice has called for that cap to be extended to all customers who receive money off their bills via the Warm Homes Discount.

But price comparison service uSwitch has warned that any price cap could lead to higher prices, more disengaged customers and suppliers with no reason to offer good deals.

City analysts have estimated such a cap could knock hundreds of millions of pounds off the profits of the major suppliers.

You can follow John on Twitter @JohnMoylanBBC

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