21 September 2011 / Home & Energy

Will government get tough on energy? We quiz Chris Huhne

Chris Huhne Former Secretary of State for Energy and Climate Change

Comments 24

Yesterday, Secretary of State for Energy and Climate Change Chris Huhne made a big splash speaking at the Lib Dem conference. We caught up with him beforehand to question him on key energy issues…

Q. The cost of energy is UK consumers’ number one financial concern, and prices are set to increase again this winter. What action can the government take to stop a new wave of people falling into fuel poverty?

We’re doing three things. First, improving competition and encouraging new entrants, so that market pressures keep prices down. Consumers can help themselves by shopping around for the best deal – even though it’s easy to switch supplier, only 20% of people do, and Ofgem has found that there can be big gains: up to £200 annually.

Second, bringing in the Green Deal to allow households to insulate their homes properly at no upfront cost (energy savings of up to 40% are possible). Third, reforming the electricity market to ensure the UK moves away from gas (world gas prices are currently rising sharply) and on to clean and secure renewable sources at home.

Q. Consumers are confused about which tariff, let alone which supplier, offers them the best deal. Suppliers claim simplification of the pricing system will stifle innovation and competition. What’s your stance on reducing tariff complexity and improving comparability?

I’m putting pressure on energy suppliers to make it clear to their customers when they’re not on the cheapest possible tariff. The Energy Bill going through Parliament at the moment will give me the legal powers to force them to do this if they won’t do it voluntarily. In the longer run, I’m interested in seeing what else we can do to simplify tariffs while maintaining competition.

Q. Do you believe energy companies when they say price rises are largely determined by factors beyond their control?

Up to a point; recent price rises are mainly driven by rising world gas prices – which is why our plans for electricity market reform, which will get the UK off the fossil fuel hook, are so important.

But as well as that, studies show that the market, dominated as it is by six big suppliers, is not as competitive as it could be, and I’m looking at ways to improve competition; our market reform plans will also encourage new entrants and help to keep prices down. I’m putting pressure on energy suppliers to make it clear to their customers when they’re not on the cheapest possible tariff.

Q. What next for the Green Deal?

By the time your readers see this, I hope the Energy Bill, which sets out the financial framework for the Green Deal, will have become law. We then need to sort out the fine details of the scheme as quickly as possible so that Green Deal packages can become available from our planned start date of October 2012. The Green Deal has the potential to cut most people’s energy bills permanently and significantly, and I’m looking forward to working with Which? and others to make sure everyone knows about it and takes up the opportunity.

Q. Do you have plans to take advantage of public subsidies, like feed-in tariffs and the renewable heat incentive, and generate your own electricity at home?

In fact I was a very early adopter; I installed a wind turbine before the feed-in tariff was available, and as a result I’m not entitled to claim it! I’m now aiming to put in solar panels as well.

What do you think of Chris’s responses? Is there anything else Government should be doing to make our energy more affordable? What are your thoughts on the Green Deal?

Comments

frugal ways says:

21 September 2011

* Reversing past legislation that reduced the storage capacity required for the UK’s energy needs would be a good start.
It cannot be right that those who took the decision to allow storage capacity to be reduced to just 5% of our energy needs, are not called to account for their actions.
The people of the UK are paying, in part, to buy back energy that we originally bought and sold for a lower price, to be stored in other countries, then purchased back when we need it, of course for a higher price.
What does the minister has to say about what has been/is being, done about this?
I have heard not one word on this subject from his office.

* When British gas were increasing their prices this summer, their chairman stated one of the three main reasons for their rise was down to “lower consumption”
Proof from the horse’s mouth of what every person in the UK has known for years – the less energy we use, the more the energy companies increase the price, to maintain their profits.
At a time when we, the taxpayer, are funding the energy saving trust and in part, the money given to them by the energy companies and the energy company’s own “energy saving schemes” – via our bills and taxes – that the energy minister doesn’t have a comment to make about this is staggering!

* Energy saving government initiatives from the past government and this government, are said by the energy companies, to be pushing up the prices of bills.
It’s all well and good for the energy minister and the Department for Energy and Climate Change to point to their belief that this will save Billions in the long term, but this is all it is, belief.
Do “energy saving measures” work?
In my personal experience, it is a resounding NO!
British gas supply our home with gas.
After various calls over months, their staff could not explain how they arrived at their prices charged.
Their staff are not even permitted access to the weekly changing Calorific Value that is used in the calculation of the amount of gas you get per unit on your meter.

When the actual units of gas being used are examined, the results are frightening.
Over the past four years, our home has had the following “energy saving measures” installed;
– Extra layers of loft insulation
– Replacement of a G rated back boiler, with an A rated “energy efficient” boiler (that does not have a pilot light burning 24 hours a day)
– Room thermostat fitted
– TRV (Thermostatic radiator valves) fitted
– Cavity wall insulation fitted
– Exterior render (2 coats) added and the outside of the building sealed
– Double glazing through out

In addition, the gas fire has been removed and we have one child less living here for the past four months – which accounts for at least 100 baths of hot water saved, not to mention lower gas use for cooking, heating, cleaning, etc.
British gas sent me a statement out in August 2011, telling me clearly that our gas use had actually INCREASED!

I asked how this was physically possible, the response was to have the phone put down on me three times, one call wasn’t even logged on account notes, incorrect call logs, and two staff whom insited that the units of gas used on the statement were not accurate. British gas billing are trained to be evasive.
Finally, a senior billing member of staff conceded that the gas units on the statement were accurate.
We went through each “energy saving measure” individually, the conclusion at the end of the lengthy phone call from British gas was…… “We don’t know, all we can do is wait until we have next year’s gas use figures are available!” – They advised this last year as well.

The energy companies openly state that initiatives they have to bring in are pushing up the cost of bills, yet the minister and his department have no comment to make or action to take. Why not?
With the exception of insulation, the vast majority of energy saving measures leave the home out of pocket, in bills and over the life of them. Why is this? What are the government doing to address this?

* OFGEM – what is going on?
It is of no use compiling a study and reviews that will run months after record price rises and bills have landed.
Why not ACT to stop price rises until after their work has been done?
If the “regulator” (and I use that term loosely) does not have the powers to do this, then what is the minister doing about it?
What is the government’s view on this?

Every man and his dog, can see that energy companies are deliberately confusing the public over how tariffs are made up and how charges are presented in statements and bills.
When energy companies are put on the spot, they simply do not have an answer.
If their own staff do not understand how bills are calculated or what charges are made up of, then how are we as customers supposed to work it out?

Since coming to office, the responses from the energy minister have been sadly lacking any reality.
Vague statements, no direction, no action to deal with the issues and hardship that people will be dealing with over the next four or five winters, shows that the minister is clearly out of touch with what is actually happening in reality.
I know this is not the place to post it, but it has to be said, rather than give the same vague answers to the energy companies actions, over and over again, he would be better off considering if he is the right person to hold the position as our energy minister!

Wheezy_alan says:

26 September 2011

I do not know to which years you are referring, but the winter of 2007/8 was exceptionally mild. Could that have a bearing on your experience?

freezing cold says:

18 October 2011

Frugal ways – Your experiences almost mirror mine, I have so much insulation in my home that it keeps the heat out in summer and we open windows to let the warm air in! My new condensing boiler froze up last year (no pilot light). I used less gas but paid more, in order to keep profits up the price of gas is increased proportionally to the fall in consumption.

Jenny Driscoll says:

22 September 2011

I was at the Lib Dems’ conference and it was clear that energy is a priority for many people who were there. It was good to hear the right messages from Chris Huhne but I feel that consumers will want to see action. Promises will not help to pay our bills this winter. Straight after Christmas, when we get our high gas and electricity bills, I really hope that we have seen some leadership from the government to demonstrate that they are trying to make sure that we are getting a fairer deal when it comes to energy. The first step is sorting out how suppliers put together our bills by forcing suppliers to give us clearer and simpler tariffs. Yesterday I was in the supermarket and could work out exactly how much I was paying for a bag of apples as the price included per kilo and per pound. The info on the price label meant I could easily compare the price of one apple with another. It’s ridiculous that I can’t do the same with my gas and electricity.

frugal ways says:

22 September 2011

I cannot believe that OFGEM allows energy companies to bill my household, for a product and service, that the company supplying it, doesn’t have a clue how to calculate the price of or work out how units are used!

The energy companies know exactly what they are doing, if what just one bill really was made up of, was leaked to the press from them, there would be an outcry. There can be no other explanation why, in my example, British gas do not give certain information of what a bill is made up of, to their own staff.

I am not a fan of switching (as everything that can be switched is currently at record high prices) but I wonder exactly how much of my bill is to pay for those that do switch?
Switching generates around £60 to a referral company/website for domestic customers, often over £100 for a business customer switch.
These payments do not come from energy company profits – they come from customer’s bills.
Why should I pay extra on my bill based on the actions of others who chose to switch supplier?

Energy companies blamed oil prices – soon as this was clearly not the cause of price increases, we got the troubles in North Africa and Japan, again this was questioned and quite rightly dismissed for the fantasy it is, the latest line seems to be that transporting the energy is going up in price – when it is pointed out that transco increases in charges don’t come into effect until 2012, there is no reply!
And so it continues….. one day, an energy company will be forced to reveal what makes up a bill/tariff/statement.

This government talked about standing up for the family unit – allowing the energy companies to introduce record price rises on the back of their huge profits, financially punishes every single one of the family units they vowed to protect and help get on.
OFGEM and the government need to ACT NOW!

Mands says:

23 September 2011

I agree with all the comments above – we are only asking for a equal playing field to compare like for like. The present system is set up to deliberately confuse the consumer and as far as I can see could be very easily corrected if the government would stand up to these companies and just bind them by law to simplify and make clear – how much a unit of gas or electricity will cost £? no matter which company it is. Never mind the standing charges, the 1st 500 or whatever units are X amount then after that the cost is Y amount – good god – you need a degree in maths! Introduce legislation and get this sorted asap.

Hannah Jolliffe says:

23 September 2011

Funny you should say that – our investigation proved just that! We asked 36 people to try and calculate a bill based on the info on the company websites and one one could do it. The group included an accountant, an engineer and a solicitor. Read more here:
http://www.which.co.uk/campaigns/energy-and-environment/tackle-tariffs/our-tariff-investigation/

Ian Savell says:

23 September 2011

This constant claim that consumers could save money by switching tariff but are lazy is too simplistic. If you shop around to buy a TV you know that if shop A sells for £300 and shop B sells for £400 you can directly save £100. If you buy a mobile phone, in general the same applies. You select the phone you want and the free minutes and choose the cheapest deal which is fixed for as long as you keep the phone.

With power, you go to the trouble of switching, usually because your supplier A has just raised prices so it is more expensive than supplier B. A few weeks or months later supplier B hikes its prices and now supplier A is cheaper. Of course, you could go for a 2 year fixed tariff but that is 20% more expensive than you are paying now, because you can bet the supplier has priced in the expected future increases. Also the deal you sign up to probably runs out after six months and your tariff goes up again.

Switching energy supplier is not like shopping around. When you sign up, you don’t know the price you’re gong to pay. Also, unlike buying a TV, which is a single task, there’s a whole pile of hassle involved. First, there’s understanding the deals available, which may depend on your usage profile, and choosing between them. Next, there’s a load of stuff related to settling the outstanding amount with the old supplier, moving direct debits (which frequently goes wrong) and getting signed up to the new supplier’s Internet site with new passwords etc. And the new site doesn’t have your usage history so you can’t check back to see if your usage is up or down this year. Also will the new supplier have a good call centre for when you have queries, or will it keep you on hold for an hour?

Fundamentally, all suppliers sell the same product and have the same profit levels so there can’t be any real saving in switching, can there? Unless you have the time to constantly watch the deals and switch frequently to stay on the lowest.

Maybe there should be a system where you buy a fixed number of KWh from a supplier, like buying 50 litres of petrol, except that you can pay in monthly installments as the power is delivered, and when you run low you shop around and buy more KWh from whoever is cheapest at that time (and energy companies have just one price – I don’t pay more for petrol than my neighbour because I have a smaller car!). Meanwhile a central non-profit organisation can maintain central records of usage at each property for statistical and energy saving purposes.

Oh – and can we do something about planning laws that allow massively subsidised wind turbines to be erected in semi-urban locations where they clearly won’t generate a tenth of the power they would in a remote, windy location where they would go if power not profit was the motive.

AB says:

23 September 2011

It would be a lot simpler for the consumer to have a regulated monopoly for each region as with water. This so-called “competitive market” is the Government passing on the buck to each individual customer to constantly monitor and keep switching perpetually without which a competitive market will never work (it does with consumer goods and groceries because the price of switching loyalty is only the additional transport costs or time spent on the Internet for online ordering. I would far rather have Ofgem regulating prices that the regional monopoly suppying gas and electricity to me than be constantly checking up on prices and establishing whether iot made sense for me to switch.

Wheezy_alan says:

23 September 2011

I’ve read the article on these issues in the October Which? I think you are chasing the wrong fox regarding {complicated?} tariffs. I’ve never had a problem finding the information, whichever supplier, nor have I had any problem doing the necessary calculations. Your example is an elementary piece of arithmetic and could successfully be tackled by any O-level GCE, not GCSE, student in the 1940/50s, though I would agree that in those days we were not too well up in set theory. Perhaps you should find another accountant or solicitor. Nor am I impressed by the observations of the Chair and Head of Mathematics of Edexel. Is that the body that gets marking in a mess, and puts unanswerable questions into exam papers? And, why would anyone need to use a spreadsheet program to do the calculations? What is wrong with long multiplication, for accuracy, or a slide-rule or set of log tables? Even Napier’s Bones at a pinch! I used a pocket calculator. By the way, I regularly visit comparison sites, including your own. I have only ever found one cheaper tariff than the one I am on.That was with the same energy company, and was only available to new customers! That’s it folks.

frugal ways says:

23 September 2011

Formula for gas meter unit price is as follows (according to british gas):

“Each customer is charged for gas based on a kilowatt hour (kWh) – the formula for working this out contains four variables, that only differs week to week, on a national average:
M3 (1 metric unit on your meter) x 1.02264 (VCF) x Calorific value (CV) divided by 3.6 = kWh”

Only problem with this is that “the national average” for the CV figure (which varies weekly between 37.5 and 43) is that one senior british gas back office staff member quotes there are 14 different testing areas for the CV – another senior back office manager states there are just 2 testing stations.
ALL energy companies use the same testing stations.
Another hurdle for the customer is the fact that the CV figure each week can be difficult to find.
British gas “don’t know” why the CV figure is not made available to their own billing staff and managers!
To find the CV on a digital meter (option 17 I later found out) is no longer included on the meter booklet instructions… I wonder why?
Imperial, old style gas meters do not show the CV each week, plus british gas staff have no access to the CV, so how are people supposed to find out, once again, british gas staff state that they “don’t know”

The fact is, unless you dig deep and wait ages for an email reply from back office staff, there is no physical way of calculating what you are paying per metered unit.
Facter in, the way tariff information is presented on comparison websites – they quote a tariff without VAT added, yet quote it as a “unit” on bills/statements is deliberately confusing the issue.

OFGEM and government should be applying the same rules as you or I would face, if we manipulated a contract between two parties, to the detriment of the other party (fraud act)

Ian Savell says:

23 September 2011

This conversation prompted me to look again at switching, and the resulting investigation turned up one big issue – the cost of Electricity.

Roughly, electricity costs 3 times as much per KWh as gas, but most electricity these days is generated from gas. The wholesale price of my gas is apparently 56% of what I pay, and presumably that is what the power stations pay. So around 83% of my electricity price is generation, grid infrastructure, green initiatives, billing costs and profit. Interestingly my supplier doesn’t give his version of that breakdown for electricty. Or is it all paying my local wind turbine owner his 43p/KWh subsidy?

Should I buy a small gas-powered generating set and cut my mains connection? Or install a wind turbine? The base will just fit in my garden.

Wheezy_alan says:

26 September 2011

Since all the electricity companies have the same mark-ups that you you identify, it is Chris Huhne who should make that information freely available. As I suggest below, that is what Which? should be talking to him about, not wasting their time on tariff structures. I do not believe we will ever get that information. It is too politically sensitive.

I like the idea about your own gas-powered generator, but, if we all did that, the gas price would rocket! I shouldn’t bother about the windmill. Windmills are OK on boats, and for grinding corn from time to time, or for pumping water, when the wind is blowing.

Isn’t it fortunate, as things have turned out, that the idea of 17.5 per cent VAT on fuel bills never happened?

eleanor mcalpine says:

23 September 2011

How much of our energy bills are being used to pay for these windmills which dominate every skyline and which have to be turned off if it is ‘too windy’because too much energy is being produced and cannot be stored.Then to make matters even worse they are paid millions of pounds in compensation.
This all in the name of ‘green energy’ which Mr.Huhne is so passionate about but we the consumers are never told how much this is costing us every month.By the time this so called Green Deal comes in a large number of elderly and sick people will not be here to benefit from any price reductions as they will have died of hypothermia this coming winter.

Wheezy_alan says:

24 September 2011

You are absolutely right in what you say, Eleanor. It is time we had some clear thinking people in these conversations. The government, of whatever political persuasion, is highly delighted that people are so easily manipulated into banging-on about irrelevant matters like tariff structures, and the rising and falling prices of gas and oil on the international markets, when the greatest impact on our own fuel prices is the cost of those governments’ actions. I do not complain that it costs money to investigate other energy sources, and that we have to pay for this at the end of the day. What I do complain about is that the energy companies are allowed to profit from these investments. The more they spend on various pointless schemes like wind-farms and solar roofing, the more profit they are allowed to make. THAT is what Which? should be asking Chris Huhne about.

Wheezy_alan says:

25 September 2011

I was not going to say more on this subject, but…………

1. I do not keep switching energy companies because I am on the lowest available tariff, and have been over the past five years with the same energy supplier.

2. It does not concern me that 95 percent of the UK energy market is controlled [?] by five large companies. To my mind that means that five large international companies are in still competition with one another. The market is working. I would be very concernrd if 95 per cent were controlled by one company, or two. So would the monopolies commission.

3. The UK is a member of the European Union. Europe is awash with water. Where are all the hydro-electric shemes? There should be no problem distributing the elecricity generated throughout the whole continent. Is politics getting in the way of sensible solutions?

4. Stuff wind-power.

5. Stuff wind-power.

6. Stuff…………….!

Dev says:

28 September 2011

It appears that Chis Huhne is unawares of the economics in utilities, in this case energy:

1. Gas prices in the US take on a different profile from gas prices in the EU. US prices are lower, why is this and why can we not buy from there if EU rpices are higher. UK utility companies quote EU gas prices when their privatisation should have given them international access?

2. Does Mr. Huhne not grasp that energy ultility companies require large infarstructures and large periodic investment? The infrastructure itself crowds out competition by many companies, especially new ones. The periodic investment requires a return over a longer period of time if it is not to impact the customer so severely. This is not possible in an environment where investors require a shorter period within which returns are seen. The case to point is the Channel Tunnel, which is now fter about 26 years, seeming to make a small profit.

3. Does Mr. Huhne not realise that the empirical evidence shows that privatisation has not increased competition but incresed prices? And the whole Thatcherite idea of privatising natural monopolies should be re-examined and if found incorrect, all natural monoplies should be re-nationalised.

Ian Savell says:

28 September 2011

Dev:

1: Surely the gas we use is almost exclusively supplied by pipeline which ties us to North Sea (declining) and east European/Russian gas, as with the rest of the EU. I’m not aware of a pipeline to the US as yet.

2: To be an energy company in the retail market you don’t need to be a producer or a generator. You buy gas or electricity wholesale and sell it retail, like a grocer sells vegetables. The only investment is in a billing system and scripts for staff in a rented call centre. Of the retail gas suppliers only British Gas are linked to a production company.

3: I’m not a fan of privatised utilities and the way things like rail were privatised simply shields the bulk of the cost from competition. However, I see no evidence that state-run services are any better at keeping costs down that the private sector. Proper regulation and transparency is the key.

Dev says:

28 September 2011

Ian,

1.Gas can be delivred by tanker a opposed to pipes, especially in a liquid stage

2. Gas is processed and stocked using large infrastructure. it is not in anyway the same as buying groceries. This is why there are commitment contracts and you can’t change quickly.

3. There is no volume of data that had monitored the efficiency of well-run state companies running natural monoplies. Most are tainted with union impact, which need to be stripped away for data to be comparable. However, if I recall correctly from a BBC TV programme a few years ago, water was more efficiently run under the state.

frugal ways says:

28 September 2011

“Proper regulation and transparency is the key.” – Spot on!

People don’t trust the energy companies, rightly so in my opinion, as the reasons given for price rises do not add up when put under scrutiny.
Most energy saving measures they proclaim the benefits of, are given in percentages where they can easily be questioned, but quoted in monetary figures where confusion arises. This is not by accident, this is by choice of the energy companies – they want to create confusion as it helps them to mask increasing profits, or bigger outlays on commission payments to comparison sites, etc.

“There is no volume of data that had monitored the efficiency of well-run state companies running natural monoplies” – so why advocate re nationalising?

When privatisation was brought in, regulations were in place to protect customers, workers and supply etc.
Worker’s pensions were protected by having to at least match the workers pension fund if a takeover was proposed.
Supply used to have regulations that ensured that the energy companies had to maintain storage capacity of at least 20% of the country’s needs.
The storage capacity today only has to be around 5% of our needs.

We have the ridiculous position now of buying cheap energy then selling it to our neighbouring countries, only for them to sell it back to us in winter, for a much higher price, which is passed on to customers in the UK.

Proper regulation and transparency is clear for most to see, desperately needed. Successive energy ministers have neglected their number one role, to look after the population first and foremost.

Ian Savell says:

28 September 2011

1. You *CAN* move liquid gas by tanker, but very little methane goes that way, it is prohibitively expensive.
2. Sorry, just wrong. ALL the infrastructure is rentable for a retailer. Anyway the issue is leccy not gas, gas is a steal even now.
3. Frugal’s response.

There is no fundamental reason why energy competition shouldn’t work, except that every time the gov’t intervene they allow an adequate margin for profit and tax. As gov’t procurement (benchmark) is hideously inefficient and rigorously legal the PLCs can negotiate very high “adequate” margins. And then they don’t pay tax so it all goes to profit. Hence transparency being the key.

Dev says:

29 September 2011

Ian,

1. It is not as expensive as you think because of supertanker and the charge imposed on using pipelines. Besides there are no pipelines leading into the UK. The “final mile” is by tanker.

2. Ian, they can indeed be rented but the cost of renting reflects the full cost of the infrastructure approtioned plus a profit element. So it makes little difrerence, you still have the large infrastructure effect i described!

3. Frugal in your opinion but correct in reality

There is only a a broad theoretical reasoning under several assumption and one scenario that energy competition would work.

But these assumptions are tenuous and at worst inapplicable and the secnario of open competition is non-existant becauses not only of the large infrastructure required and even if rented, there are only a few providers of such infratstructure who have to recoup costs and make a profit in a time frame that is much shorter that would be available under a centralsed system. Case-to-point: The Channel Tunnel – French experience and the English experience.

There is no reson why government procurement cannot be efficient unless of course the process used is inefficent. The same would occur in a private company if this were the case. The transparency argumentment is transferable to the government as well and the adoption of IFRS accounting practices instead of out-moded government accounting will provided the monitoring required for efficiency. In addition the cost of quangos, whose efficiencies are not easily seen, will no longer be incurred.

Bob says:

17 October 2011

Green energy schemes such as Wind Turbines and Carbon Capture should not be subsidised or paid for by in effect imposing a tax on fossil fuels, which is passed on to the consumer by the energy companies. The reality is in the present depressed economic situation the country cannot afford to embark on such schemes and the government should abandon or at least shelve them for the time being or perhaps they could be financed by the private sector. Energy prices are high enough without this additional Green Energy Tax. It is becoming increasing doubtful if such schemes can be justified by climate change as many scientists advocate that the climate is now getting colder not warmer.

Dev says:

18 October 2011

Chris Huhne’s policy of improving competition and encouraging new entrants, so that market pressures keep prices down is flawed because

a) it will take too long before this happens and
b) the infrastructure requirements prevents new entrants, even if the infrastructure is rented. In fact, renting will cost more as infrastructure costs will include a higher profit margin and VAT on this higher total price.

Mr. Huhne and Mr. Cameron are not correct when there say there is a worldwide price for natural gas and electricity. The prices in the US varies from the UK even after CIF (cost, insurance and freight) type charges. http://www.eia.gov/dnav/ng/hist/n3010us3m.htm
But it is more difficult to get monthly EU information, because of data charges. http://www.energy.eu/Historical-Prices/

While I believe that natural monopolies such as gas and electricity will never be effiient under privatisation because natural monoploies inhibit competition by their very nature; one way of moving forward quickly is for the regulator to publish historical and current price data. This would promote transparency.

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