Earlier this month, Ofgem launched a new Supplier Cost Index (SCI). This new report replaces the Supply Market Indicator, which suffered from reliability issues. The SCI will track the ongoing trends in the energy supply market, revolving around the main elements that energy suppliers face. This update will be published on a quarterly basis, and seeks to increase transparency in the sector, in particular around energy prices.
The previous iteration of this report, the Supply Market Indicator (SMI), was withdrawn following sustained pressure from the energy industry and questions raised about its accuracy. While it may have been unclear how the energy companies were going to react initially to this new Supplier Cost Index, any questions surrounding the reactions were swept away last week. The large energy companies almost immediately called into question the SCI’s forecasts for the energy supply and prices. Companies are not fond of the SCI setting expectations around prices, which may limit their ability to set higher prices.
Ofgem is hoping the new index will work to balance the information and reach of the Big Six energy companies, and work to check their power to raises prices. With the index reporting on supply and contributing factors in the sector, it will likely limit the ability of the companies to hike prices too high. Should any tariff increases be out of line or over what is reported in the SCI, the reaction would be overwhelmingly negative and result in actions from Westminster. Members of Parliament from all parties would be likely to question the rise in prices, both inside and outside of Parliament. The government may question any rise, especially given the Prime Minister’s focus on alleviating the pressures on those ‘just about managing’. Finally, should there be a large enough negative public reaction, the government may react with public condemnation of the energy companies, or seek to implement regulatory measures to compensate.
This new tug of war over information and consumer protection will continue for the foreseeable future. The SCI is set to be released quarterly, and it can be expected that upon its release there will be questions to the energy companies and swift actions to sway the opinions of the public.