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Centrica takes government, Ofgem to task over policy costs and smart meters

Centrica has made a raft of proposals to both government and Ofgem in a bid to “level the playing field” in the energy market.

The energy major this morning published what it described as a package of actions and recommendations aimed at reforming the UK power sector and ultimately benefitting customers.

The measures, both internal decisions Centrica will enforce itself and policy recommendations for the government and Ofgem to consider, have been made at a time when the UK energy market faces significant change, with a price cap on the cards and utilities having to contend with evolving business models.

Iain Conn, group chief executive at Centrica, said that his firm was ready to play a leading role in the future design of the power market.

“Today we have set out the unilateral actions we will take to improve the UK energy market for our customers. This starts with the withdrawal of the Standard Variable Tariff which contributes to lower levels of customer engagement.

“We also believe that further measures by Ofgem and the Government are required so that together we can create a market that works for everyone, where there is improved transparency and a fairer allocation of costs currently included in the energy bill,” Conn said.

Of the unilateral steps Centrica said it would make, perhaps most eye-catching is the withdrawal of its standard variable tariff for new customers, to be replaced with fixed-term competitive tariffs. For those customers who have not changed when their fixed-term contract expires, a rolling, 12-month default tariff will be in place.

But Centrica has reserved particular ire for policy costs, a subject which has proven tricky for the Big Six firm in recent months. The firm blamed both policy and network costs for a 12.5% increase of its prices in August, reasoning which triggered a swift rebuke from the Energy Networks Association.

Today Centrica has proposed that all policy costs, including those associated with environmental subsidies, be moved out of energy bills to general taxation, claiming this to be a “less regressive” mechanism.

Such a change would spread the cost associated with decarbonising the economy more fairly, Centrica said, although the firm has admitted delivery would “not be easy”.

“We believe the government should consider a less regressive mechanism to recoup policy costs, to protect those on the lowest incomes for whom energy is a higher proportion of their outgoings,” the company said.

Estimates included by Centrica claim that as much as £5 billion worth of policy costs could be moved out from energy bills each year, equivalent to around £200 per bill.

But Centrica has been criticised for suggesting these savings, especially given they appear to have been revised upwards from a £150 cost put forward by the company earlier this year. Lord Deben, chairman of the Committee on Climate Change, has also responded, placing green costs on bills at £108. 

Moving policy costs to general taxation is not, however, a new idea. Such a move has been discussed at length in the past and was among the recommendations included within Helm’s cost of energy review.

Ecotricity founder Dale Vince also backed the idea speaking to Clean Energy News earlier in February, agreeing with Conn that the mechanism was regressive.  

Meanwhile Centrica has also found fault with the government’s smart meter roll-out programme which aims to at least offer every domestic and business consumer in the UK a smarts meter by 2020, the cost of which is immediately borne by suppliers.

Noting that the programme is costing the firm as much as £300 million each year – equivalent to around £40 per customer – it said the government needed to tackle inefficiencies within the roll-out, including the adoption of a more flexible approach to technology and to review the 2020 deadline.

“We believe our proposals will deliver a fairer, more competitive and sustainable energy market for customers and will be significantly more effective than further Government intervention through temporary price controls.

“The energy system must change, and it is not cheap. These costs should be paid for more fairly with a greater burden carried by those who can most afford it,” Conn said.