The failed energy market needs more than another review
With yet another investigation into the failed energy market, it’s hard to see why consumers should have any more confidence in this latest initiative.
Ofgem is referring the energy market to the Competition and Markets Authority (CMA) for a full investigation. They claim this should ensure, once and for all, that competition works effectively for consumers, by bearing down on prices while driving improvements in customer service and innovation.
Tom Greatrex, Labour’s shadow energy minister, said: “The prospect of a full blown market inquiry is confirmation that there are structural issues to address, despite the government’s lack of interest in real reform. Labour has the policies to reform, refocus and re-set this market, and we hope an investigation by the CMA will provide the impetus and expertise for such action.”
TUC General Secretary Frances O’Grady, put it more bluntly. She said: “Energy companies have been ripping off customers for years and today’s decision to refer them to the Competition and Markets Authority is long overdue. It’s about time the government stood up for consumers who are sick of seeing their rising bills being used to prop up bloated profits.”
Citizens Advice added that the investigation also needed to consider whether competition was working for people on low incomes, not just active consumers. Gillian Guy, chief executive of Citizens Advice, said: “Citizens Advice sees people on lower incomes who are struggling to meet extortionately high energy costs, brought about in part by energy firms’ failure to provide real choice for people with less money to spend.”
In a separate initiative, Ofgem has called on the Big Six energy suppliers to explain to their customers what impact falling wholesale costs will have on their energy prices. Both wholesale gas and electricity prices have been falling significantly. In early June 2014, gas prices for next day delivery reached their lowest level since September 2010 and are now around 38% below this time last year. The trend has been similar in electricity, with prices reaching their lowest level since April 2010 at the beginning of June. They are currently around 23% lower than this time last year. Forward prices for gas and electricity have also fallen. Compared with last winter, gas and electricity prices for the coming winter are around 16% and 9% lower respectively than last year.
Even energy minister, Ed Davey, has admitted there was a “lag” in falls in wholesale electricity and gas prices being passed onto energy customers.
In this context, it is hardly surprising that customer complaints to the Big Six energy companies have reached their highest-ever levels. The Big Six suppliers received a total of 1.7m complaints in the first quarter of 2014, up from just under 1.5m in the same period last year. The quarterly performance is the worst for the sector since its biggest players started compiling records in 2012.
A survey by SMCDB found that more than half of UK consumers don’t trust energy suppliers amid widespread confusion and anxiety about bills. Some 51% said they did not trust any energy supplier, with this rising to 57% of those living in fuel poverty or with a disability. More than a third were concerned that their energy bills are not accurate, and 41% worried that they pay for more energy than they consume.
As usual, Ofgem’s solution is that more customers should switch supplier. Under their new plan consumers will be able to switch electricity and gas supplier within two-and-a-half weeks, including the two-week cooling off period. They have also published additional plans to introduce next-day switching by 2018 at the latest. Around 62% of people have never switched energy supplier, and these people are often on old, uncompetitive deals and consumers could save up to £200 a year if they switched.
However, the SMCDB survey revealed that more than two-fifths of consumers did not believe they have the information they need to choose the right energy tariff, while almost as many were not confident they had enough information to select the right supplier.
Energy companies are now making a record £96 per household, with profits doubling in the past year despite a drop in the price of wholesale gas. The profit on selling gas has now reached 10 per cent – double the 5 per cent profit margin companies were making this time last year.
On this evidence, yet another review of our failed energy market looks less than convincing to consumers. That’s why there is growing support for more radical solutions, including public ownership.