Energy shares fall on Conservative price cap plan

Shares in major energy suppliers fell on Monday after the Conservative Party said it would pledge to cap prices.

Shares in Centrica and SSE both recorded falls of up to 5% in morning trade as the Tories said the promise would be in their manifesto ahead of the June 8 General Election.

Labour said the idea should be taken "with a pinch of salt". Former party leader Ed Miliband proposed a 20 month freeze on domestic energy bills ahead of the 2015 election, which he lost to David Cameron. The Conservatives at the time dismissed the plan as a "sleight of hand".

Scottish Power chief corporate officer Keith Anderson said a cap would "damage customers in the long run".

"If you put a cap on prices, you actually stop competition. That's the danger of price intervention," he told the BBC.
One Cabinet minister said the market was “not working perfectly”.

Iain Conn, the chief executive of British Gas parent company Centrica price regulation would result in "reduced competition and choice, stifle innovation and potentially impact customer service".

The Competition and Markets Authority last year stopped just short from recommending a full price cap, and instead proposed price controls for customers with pre-payment meters.

Defence Secretary Michael Fallon, a former energy minister under Cameron, said the Conservatives wanted to “see more competition (and) more people able to switch between energy users”.

"That over the last three or four years has not happened. This is a market that is not working perfectly and therefore we are intervening to make markets work better," he said.

The Tory manifesto pledge would see a cap on bills for 70% of households paying standard variable tariffs.

Work & Pensions Secretary Damian Green told ITV consumers "feel that some of the big energy companies have taken advantage of them with the tariffs they have got".

Predictably, the industry's trade body came out against the proposal.

Lawrence Slade, chief executive of Energy UK said intervention would "undermine so many of the positive changes that we are seeing in the retail market. It would be giving up on competition, and at a time when we need engaged consumers more than ever".

"Intervention on this scale will additionally create huge uncertainty around government intentions, potentially putting at risk the billions in investment and jobs needed to renew our energy system," he said.

Neil Nilson at ETX Capital said with a likely Tory victory at the ballot box energy firms now faced a threat to the enormous profits they had been generating "up until now".

He added that the recent wave of 10% price hikes this spring "looks to have been the last straw for the government as it seeks to do more for the ‘just-about-managing’".