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British Gas price increases – we need more competition!

Little fish eating big fish

British Gas is the second of the ‘big six’ energy companies to announce price hikes – 18% for gas and 16% for electricity. You may shrug and say others will follow suit, but could more competition solve the problem?

It’s easy to rant and rail when energy prices go up. I did so myself only a few weeks ago when Scottish Power announced a whopping 19% increase in gas and 10% in electricity. Usually I’d switch energy supplier in this scenario, which is exactly what I did.

But, as was pointed out in some of the comments in reply to my Conversation, that’s not the best solution. British Gas announced similar price rises today and I expect the other energy companies will soon follow suit.

Chris was spot on when he asked about my switch:

‘Yes but where are you going to go? All the other energy suppliers are soon going to follow in their footsteps. Good idea to always be on the cheapest tariff, and lock in for as long as possible, but gains are temporary. Switching is not the universal panacea to the problem of ever increasing energy prices.’

A very good point. As consumers we have a certain amount of power – we can vote with our feet and switch to a better company, make complaints when they do something wrong, or in extreme cases report them. However, it’s easy to feel overwhelmed in the energy market – why bother to switch when we know we’ll get the same treatment (and roughly the same prices) from another supplier?

New players in the energy market

One of the key solutions, I think, is to fill the marketplace up. The ‘big six’ all tend to raise their prices at roughly the same time. Many people are deserting the larger companies for smaller suppliers as they find they get a better service, even if they do have to pay a little bit more.

There was a lot of love given to Ovo and Ecotricity in reply to my Scottish Power Conversation. GoodHonestAdvice, who was switching to Ovo, said:

‘They will be slightly more expensive than if I were to stay with Scottish Power, but I am disgusted with the fact that Scottish Power has doubled its standing charge, which will hit low income and low usage customers most.’

And Organicrad11 praised Ecotricity:

‘As a customer of Ecotricity I know that I will not be ripped off, will not want to change supplier, will have my phone calls answered straight away by someone in the Stroud office (no call centres abroad), and above all, can use electricity in the knowledge that most of it is definitely from a low-carbon source.’

So do you think that these smaller companies could give us a brighter future? I personally like the idea of an energy market that’s much more competitive, where some companies might say “actually, I’m going to buck the trend and keep my prices stable now.”

They might make smaller profits in the short term, but I for one would be happy to be a long-term customer if my energy company was willing to stand out from the crowd.

Comments
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Hello everyone, good news. Our commenting system is now back up again! You can send us as many comments as you please. We’re very sorry for the inconvenience and hope you keep joining in on the Conversation.

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John Symons says:
8 July 2011

The British Gas electricity price increase seems very high in comparison to other companies: about the same as the gas price increase rather than about half of it. How do they justify being out of line in this way?

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Centrica last week told the daily mail that one of the three reasons for future price increases was, “lower consumption” – astonishing that they have the cheek to market that people should be saving energy at the same time as punishing their customers financially for saving energy!

Competition, in my view, will not help here.
We need a regulator that acts fast and has the teeth to stop energy companies in their tracks. Waiting for a report months down the line isn’t going to stop my household being a further £164 out of pocket this year, because of this price hike.

The biggest benefit for customers would be to reveal what energy bill payments are being used for.
If british gas didn’t confuse the issue so much (along with other energy companies to be fair) then I don’t believe prices would be as high as they are now, pre price rise.
Transparency is the key, if energy companies and their billing methods are exposed for all to see, then the billing system is simplified, we would all be able to see where the money is going.

British gas would do well to remember that providing customers with essential energy is a PUBLIC SERVICE and as such, minimal profits (if any at all) should be made on this.
They make more than enough profits from boilers/service contracts/insurances, etc.
All gained from being seen as experts (above non energy companies) in their field, due to providing the public service that is energy provision.

If british gas are not profiteering then what’s stopping them from letting the public have access to the information regarding the buying and provision of the service?

One other question – consumer focus, consumer direct, ofgem, competition commission, department for energy and climate change are all non existant in taking any ACTION. Which begs the question, what do we pay millions to them for when they cannot suspend, prevent or block 25% rises in energy without any justification from the energy company concerned?

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Since electricity and gas supply has been privatised and is no longer a “Public Service” we cannot expect all the companies ( let alone just British Gas) to open up their books and accounts to the public.

Market forces should control prices with different tariff types available from different suppliers.
However unlike say the financial savings or mortgage market no supplier offers a tariff linked or indexed to some measure of the actual market price which would at least allow consumers to feel they are quickly getting the benefit of any fall in price.

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In an ideal world, market forces would control prices I agree, but it just isn’t happening.
I don’t know if safeguards have been removed (via parliament) but in recent years the number of increases has gone up.
Centrica have made several statements this year, three of the most telling ones;
“increases are neccessary due to lower consumption” – we are told to save energy so they charge more for energy, even when there is no proof that say installing a new boiler saves more energy as british gas’ billing managers tell customers.
“retail margins need to be recovered” – showing that price rises are more to do with profit levels for shareholders
“wholesale prices are expected to be 30% higher this December” – expected? in December? So the wholesale price rise is not an actual event, just expected?
These price rises come into force in August, at least three months before any perceived wholesale price rises (and on top of the 9% rise in December last year)

Previously we were told by energy companies of the link between oil prices and energy prices – amazingly, now oil prices have fallen, not a single mention of this link.
As it stands, we are in the crazy position of not being able to see exactly what British Gas’ wholesale price actually is now, a question they simply ignored when asked directly via their twitter feed.
There has to be a way for energy companies to give information on just the provision of home energy. If it’s commercially sensitive then this should be given to governments or regulators.

Wether privatised or not, providing energy that we all need in our homes is a public service, profits from this should be minimised or standardised across the industry, with rigorous enforcement by a regulator with real powers.
Which body/regulator is going to step up and take on an energy company on as it stands now?

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I considered applying for fixed payment for a year ahead when Scottish Power announced their price increase and the premium for the privilege was 19%. Admittedly the chance of losing out if fuel prices reduced is improbable but the increase announced today seems to match the premium for a fixed tarif.
Is this a co-incidence?

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British Gas price increases- We need more competition !
You may be right but this increase will go on and on until OFGEM and Government stops their sweet relation with them.
OFGEM is the governing body of the Gas and Electricity market. They suppose to protect consumers which is their first priority
Here, everything is happening out of control and going opposite direction and giving bad example to others to follow them. They will drain consumers hard money in this bad economic condition with limited money in their pocket.
All Energy Companies will also hold your credit money with forthcoming price increase !…..They all playing their best monopoly game to beat the consumer protection body .You know why ?
Our Consumer law is too weak to protect us. This will go on and on until Govt and MPS take active interest to protect from sudden rise.

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I think part of the problem is not lack of competition but the length of time it takes to change supplier. I recently swapped and it took the best part of 2 months to switch over. Even then, I am tied in with early exit penalties so it is only really worth considering changing once a year.

If it was possible to switch providers in, for example, 5 working days then competition amongst the existing suppliers would be much more aggressive.

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Rose says:
10 July 2011

The regulators really need to stop these excessive price increases. I’m sure switching has made things worse – the administrative costs to these companies of people continually switching must be huge, so we’re paying for switching in increased bills. It’s a no-win situation for consumers currently and really needs to be addressed or a lot more people will be living on or below the poverty line.

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Are the rises excessive ? There have been big increases in the market price for gas and electricity.
We dont know how much the suppliers have protected themselves against increases by trading in “futures” and we dont really know what the suppliers are paying for the power themselves.
So are we really in a position to claim changes in prices are fair or unfair ?

Unlike most other goods we buy the cost the consumer pays for power consist mainly of the cost to the supplier and its unlikely that there is a huge difference between suppliers in their other costs.
e.g. The market cost of coffee and chocolate has increased enormously over the last year but the consumer price has increased by only a relatively small amount as its made up mainly of processing, transport and marketing costs.

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It seems every time there is any mention of energy price inceases everyone starts talking about “switching”, “fixed deals” and “increasing competition”.
But when all suppliers get the energy they sell us from basically the same place and at much the same price these switching and fixing exercises are at best short term gains (welcome but still short term) and not by any means a satisfactory on going solution. Fact is energy costs are set to continue going up whoever you buy from and tinkering around the edges by switching won’t really change anything in the long term.

We can of course save by trying to use less, by insulating and getting more efficient appliances, but that in itself may turn out to be a short term gain because if say British gas sells less the unit cost to supply increases placing pressure on profits and leading to more unit price increases (economies of scale in reverse) In fact I suspect this is already happening.
Add to this the Green taxes imposed by the Government and the future doesn’t look good for our bank balances whatever we do and whoever we buy from.

I’m coming round to the conclusion that we need much more state subsidy to improve our domestic energy efficiency, more insulation, more money off better heating systems and legislation on minimum efficiency ratings of the appliances we buy. The cost to do this will have to come from general taxation, but this is a national problem and to coin a phrase “we’re all supposed to be in it together”.
Combine this with re-nationalsation of the energy supply industry to get rid of infrasructure duplication (and cost), put into place a powerful watchdog to ensure efficient operation and things although probably not perfect will be as good as they could be.

We’ve tried a free market approach to energy supply and it seems to me not to have worked, we’re all getting turned over to satisfy a greedy profit margin and I can only see it getting worse, much worse.

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Multiple consumer says:
16 July 2011

I have found the problem with all energy companies is the chaotic systems when it comes to switch suppliers.

It can takes months and often the wrong meter is chosen (like old meters which were removed from properties leaving a ghost MPAN number). Also the system of deemed readings on transfer is all chaotic.

It is crazy to suggest re-nationalisation ………..we don’t think it’s a good idea to have Tescos run by the government do we? What is wrong is the regulators are so stupid and weak is that they have allowed switching to be a nightmare and pricing to get confused (ie loads of tariffs and traiffs by postcode).

Multiple tariffs are designed to confuse. There is an easy solution

1. There should be one central company which deals with the meter readings which allows immediate switching
2. Let the companies have confusing tariffs if they want to but all should be forced to have a “national tariff” to allow easy comparison. The National Tariff would have a standing charge and price per kilowatt hour (for gas and electricity)

Price transparency and easy switching would transform the totally non working market to something that would be much better.

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I disagree, the problem is that we are trapped in a cartel created by both a botched privatisation and stealth taxes created by government.

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What’s crazy is to use the comparison of a state run Tesco with a fundamental part of the nations infrastucture.
Using your argument why not privatise all roads, perhaps the armed forces and the Police?
Wouldn’t work would it?
It seems niether does privately operated energy supply.

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SSE has now joined the price increases, with gas prices up by 18% and electricity by 11%.

Which? executive director Richard Lloyd says: ‘This is the third price hike from one of the ‘big six’ in less than two months. With average dual fuel bills hitting £1,265 a year, many customers who are already struggling with the rising cost of living could be forced to cut back on essentials.’

‘It’s vital that the government and suppliers now make every effort to help people reduce their energy usage and take control of their bills this winter, or many customers may have to make tough choices between heating and food.’

http://www.which.co.uk/news/2011/07/scottish-and-southern-energy-to-hike-prices-259397/

More to follow?

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Patrick, I would basically agree, but it is already established that reduced sales of energy tends to cause increases in unit supply price. A British Gas spokesperson actually said just that when giving the reasons for the recent increases. Therefore reduced consumption actually encourages price increases to protect profit.
The term I’ve used before is “economies of scale in reverse”.
There will always be potential for us to use less but if this promotes unit cost increase where’s the gain, what’s the point, and how does this encourage everyone to become more energy efficient?

My solution would be re-nationalisation overseen by a watchdog with teeth, and then hopefully we’d see usage savings reflected in real cost savings.

What do you think?

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I will be moving from an all electric apartment next month for a terrace house with separate gas and electicity suppliers. Should I continue with the existing providers at the house are already use the switch tool to find the best combi supplier and get a fixed price deal?
Are any of the suppliers better at helping with Boiler replacements or insulation support?

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Mike says:
4 August 2011

I have just substituted the new unit rates into my latest bill and the increase, both for gas & electric, is actually 22%. This is using Online Saver 4. Other tariffs may vary!
I checked my calculations twice and I promise they are correct.
So, what’s all this about 16% and 18% price-hike then?
British Gas, wholesale prices are now 30-odd percent LOWER than 3 years ago… please explain?

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Brian P says:
12 February 2015

I left Eon and joined Ecotricity last year and they E-mailed me to say they are cutting my energy bills by 6% in May.I cannot fault this company and if any of you are thinking of switching,I don’t think you can do any better than join this company.