By Nina Chestney
LONDON (Reuters) - Britain's energy market regulator Ofgem has the power to cap energy price tariffs but the decision is a matter for the government, its chief executive told a parliamentary committee on Wednesday.
Innogy-owned Npower's (DE:IGY) announcement earlier this month to raise its dual-fuel annual energy bills by an average of 9.8 percent from March 16 has prompted renewed calls for reform of the UK retail energy market.
A two-year inquiry by the Competition and Markets Authority into the market, which concluded last year, stopped short of imposing a widespread price cap, instead proposing a price cap on pre-payment meters, used by poorer households, among other measures.
"In theory we have the powers to amend any licence condition as we see fit," Dermot Nolan told the Business, Energy and Industrial Strategy committee.
"But given the framework we operate under we have never sought to put a price cap...for standard variable tariffs," he said.
Standard variable tariffs are usually more expensive than other tariffs offered by energy companies because the unit prices per kilowatt hour of electricity can go up or down at any time and is not fixed.
Ofgem estimates around 20 million energy customers in Britain are on such tariffs.
If Ofgem did use its powers to impose a cap, it would "almost certainly" be appealed to the Competition and Markets Authority and would be contrary to the framework under which Ofgem was set up, Nolan said.
Some analysts believe government intervention in the market could be likely if more utilities raise prices this year. EDF Energy (PA:EDF) has said its variable electricity prices would be frozen until March but then rise by 8.4 percent.
"I am conscious that there is a desire for a policy shift on this but it is very much a matter for the government," Nolan said.
"If the government chooses to go down that road we would support and implement it," he added.
Many utilities argue that more intervention in the market creates more uncertainty, which reduces competition and stalls investment.
Npower cited increases in wholesale energy prices and the cost of delivering on government policies as reasons behind its decision to raise prices.
Nolan said wholesale energy costs had risen by around 15 percent by the end of last year. Of that, 12.5 percent was driven by fossil fuel price rises and the remaining 2.5 percent was down to government policies.
However, Lawrence Slade, chief executive of energy industry trade association Energy UK, said policy costs were forming an "increasing part" of bills, adding that he expects them to add 120-140 pounds to the average customer bill next year.