Utility Week

UTILITY WEEK | MARCH 2022 | 9 Interview P olitical opinions on the energy price cap have not been hard to come by in recent weeks. However, among those lining up to air their views at prime minister's questions each week, few can equal the long service to this debate of Conservative MP John Penrose As seasoned Utility Week readers will no doubt recall, Penrose was one of the leading campaigners in Parlia- ment for the introduction of the price cap back in 2018. With existing legislation governing the cap set to be reviewed later this year, Penrose is pushing for reform that would tackle some of the unintended consequences of the current design. He has always advocated a relative cap, which would set each retailer's default tariff at no more than 6 per cent above the most competitive rate they offer. The idea is to protect customers on default tariffs from excessive charges while giving them an incentive to seek cheaper deals. This option offers a more sustainable solution for the energy market over the longer term than the one- size-fits-all cap that the government opted for, Penrose believes. While acknowledging that a relative cap "wouldn't completely solve" the pinch facing consumers, it would help, he says: "The relative price cap doesn't fix the sky-high price of international wholesale gas but would certainly help. "It would mean that the challenger brands that remain and don't have a big back book of long-term inherited customers because they weren't part of the Big 6, would no longer be at a competitive disadvantage. It would be a level playing field. "Based on the principle that every little helps, and this is more than a little, it is something we should do. But it shouldn't be the only thing." The other big plus point of his proposal, Penrose argues, is that it would take Ofgem out of the process of determining the price cap. "That would be a much less intrusive piece of under- lying regulation. It wouldn't be something that would have to be reset with a great deal of political grief and Jonathan Brearley wouldn't have to appear on the Today programme every six months to explain what's going on. "Each company would be able to set its prices just like it does today: the only difference would be that their default price would be priced off their best prices. If you want to do sustainable or paper-only tariffs, you can still do that and you can choose a price-point but your default tariff must not be a rip-off compared to what you charge everybody else. "Once you have that basic piece of regulation in place, you can potentially start to reduce the regulatory burden. If you do these things the right way you can strip out a load of the red tape. "It would be part of the background furniture," he says, adding that a similar mechanism has recently been introduced to crack down on so-called loyalty penalties in the "almost adjacent market" of insurance. "We have a proof of concept in the real world." Customers can vote with their feet It may seem out of kilter for a Conservative like Penrose to be espousing price regulation, but he argues that there is no contradiction, given that all markets operate within regulatory frameworks. "This means that any customer can vote with their feet but also that those who are too busy to switch can get an equally good deal," he says. The Weston-Super-Mare MP illustrates his argument continued overleaf

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