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Time for change in the energy market

energy market

Just over two years ago the Competition and Markets Authority began investigating the energy market following concerns raised by Which? and others about ever increasing prices, lack of competition and a market that isn’t working. Today, it’s published its final decision.

Alongside the almost 500,000 supporters who’ve so far backed our campaign for fairer energy prices, we’ve been urging the CMA to take a hold of the market and deliver real change to fix an industry that has seen millions overpaying. So what’s its final decision?

Energy market problems

The CMA has identified that around 70% of customers of the Big Six are on Standard Variable Tariffs who, according to our research, could’ve made average savings of around £330 if they’d switched.

In fact, the CMA found huge differences between the cheapest prepayment and direct debit tariffs of between £260 and £320 and that those customers on prepayment meters – around 16% of the market – have been served by weak competition.

In fact, it’s found the detriment suffered by prepayment customers of the Big Six equates to 12% of a typical bill.

The Authority has also identified a number of regulations have restricted competition. For example elements of the ‘simpler choices’ rules has led to companies withdrawing tariffs and discounts in a way that has made some customers worse off.

Finally, it’s found that customers as a whole paid an average of £1.4bn a year more than they would’ve done under a well-functioning energy market.

The final proposals

It’s clear from the CMA analysis that the energy market isn’t working.

So here are some of the proposals the CMA has published to address this:

  • An Ofgem-controlled database of customers who’ve been stuck on their supplier’s default standard tariff for more than three years, allowing rivals to contact them with better deals. This will be subject to strict safeguards on communication so that you can opt out at any time. It will also be heavily tested by the regulator Ofgem.
  • A temporary price cap to protect the four million vulnerable customers on prepayment meters, which would reduce their bills by a total of £300m a year. This will be in place from 2017 to 2020.
  • Strengthening the ability and incentives for price comparison sites to help customers find better deals by giving them access to relevant information like customer meter numbers and allowing them to negotiate exclusive deals with suppliers.
  • Removing the four tariff rule, which the CMA says limits competition and innovation, and therefore allowing suppliers to offer deals designed for certain customer groups.

Restoring trust

There are no short-term patches for a market that has been broken for many years, and the CMA’s proposals won’t fix the market overnight. The Authority’s findings confirm what we‘ve known for years, the market simply isn’t working.

With the cost to consumers standing at £1.4bn, we need to see all energy companies start to change. Our latest consumer insight polling found just 34% of people trust energy companies to act in their best interest.

It’s vital that vulnerable customers on prepayment meters are protected from high prices. It’s also imperative that the regulator tests the database proposal to see if it does actually help customers switch to better deals. We also expect to see swift action from suppliers on how they will be implementing the recommendations.

If companies don’t start demonstrating quickly that they can treat their customers fairly by delivering a much better service as well as competitive prices, Ofgem must be prepared to come down on them hard.

This is a view shared by Ofgem. Chief Executive, Dermot Nolan:

‘Ofgem urges the industry to get behind the entire package of remedies and to work with us to deliver an energy market that works for both active and disengaged customers as quickly and effectively as possible.’

So we’ll be challenging companies to start delivering and stop stalling on delivering real change for consumers.

But we want to hear from you. What do you think to the final proposals from the CMA? What do you think energy companies need to be doing now to restore trust and treat their customers fairly?

Eric says:
31 July 2016

These big foreign run companies estimate your usage not by actual meter readings and these are very often wide of the mark in their favour At least years ago we had meter readers used to visit every quarter But these companies are only interested in lining their own pockets and those of their Shareholders

Eric – I believe all energy suppliers allow their customers to submit their own meter readings [on line or by telephone] and it’s a good idea to get into the habit of doing it monthly to avoid just such a problem.

It’s a good idea to provide meter readings but there can be problems.

When I was with e.on I provided regular meter readings without fail, yet they pushed up my direct debit even when I was well in credit. Every time I called them they were quite happy to reduce the direct debit and sometimes said that they did not know why it had been put up.

Scottish Power were worse, once increasing my direct debit by 40% without even sending an email, even though my account was well in credit. Then they decreased the payment to less than it had been originally. Again I had been meticulous in providing meter readings. I switched to Ovo, which did a good job.

When I moved house, the previous owners had used e.on and I decided to stick with e.on to make changing the account simpler. e.on do seem to be some improvements since my previous experience. So far so good.

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I ended up with Scottish Power because the local council had arranged a collective switching scheme. It looked good value and I switched without finding out about SP. 🙁 Switching websites may compare prices but they are not clever enough to compare service.

My experience with SP has convinced me that price is not the only consideration. I doubt that Ovo will let you get much into credit because they pay 3% on credit balances, I understand. I will look at the Co-Op when I next think about energy suppliers.

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“Alex Neill, Which? Director of Policy and Campaigns, said:

“After two years of investigation into the energy market it’s now time for action, so it’s good to see Ofgem swiftly taking forward the CMAs recommendations to increase competition and reach people who are not engaged in the market.

“The regulator faces a huge challenge in implementing all of these recommendations in a way that stimulates competition to deliver better outcomes for many more consumers. For this to happen the industry will need to commit to working with the regulator to ensure people get a fairer deal on their energy.”

I’m glad to see Which? making a positive response to the CMA’s report and Ofgem’s reaction. We will never please everybody of course. Ofgem are currently consulting on the changes to tariffs and helping consumers make informed choices. Details on their website. I am sure Which? will be contributing.

Personally, I would like to see Ofgem abolish standard variable tariffs in their present form, where they are subsidising fixed-term tariffs. The latter in my view could still be offered to those who want a predictable bill, but without any cross subsidy. Competitive variable tariffs should be the norm. Other options could include tariffs without standing charges, off peak tariffs, very low user tariffs, and vulnerable user tariffs subsidised by the state.

I see no point in multiple comparison sites. One will be sufficient run independently (Ofgem, for example).

Hello Malcolm, there’s a new convo about today’s announcement here https://conversation.which.co.uk/home-energy/energy-sector-reform-ofgem-cma-recommendations/

Thanks Lauren. 🙂

Roger Gibbons says:
3 August 2016

Following the recent media push to get us to switch energy suppliers, I decided to check on uSwitch. I entered my current supplier and payment plan. The website displayed my current price/kWh and standing charge, but it was incorrect and there was no way to correct the figures, so any comparisons would obviously be wrong. I tried 2 other comparison websites but neither of them even displayed the data on which their comparisons would be made. The data on my price/kWh being too high, of course all websites came up with totally incorrect savings that could be made. I wonder how often this happens and how many people are led to making a switch because of incorrect data being used.

Here is a good way to save on Electricity. We moved house two weeks ago. Three weeks before we moved, (as soon as we knew our moving date) we asked OVO our suppliers to arrange us a new account for the new premises. They said they were unable to do so, we had to take up an account with the existing suppliers at the new house and then asked them (OVO) to take over the supply.
The seller of our new house stated that their supplies were with British Gas (Gas) and NPower (Electricity).
We arranged with Britsh Gas for an account for the gas but NPower told us they were not the suppliers, the meter had been disconnected in 2012. We knew that there was a supply at the address and asked them to take over the supply but they said they were unable. We contacted several Energy companies with the same request but got the same reply.
UK Power Network is the distribution network operator for our area. None of the departments we contacted initially would take any interest in the fact that we wanted a supply, all of the people we spoke to were courteous and all told us that we had to get a Energy company to take over the supply. We spent hours on the phone going through all the same questions as before but we achieved nothing.
When we moved in of course we had a supply. I phoned various companies with details of the meter and the address but none were interested, they all said that the meter had been disconnected in 2012 and there was nothing they could do about it, despite my assurance that we has a metered supply at the address.
Eventually a week after we moved in I found a helpful lady at ‘new connections’ at the power network who rang British Gas on my behalf and gave me an email address to communicate with. I sent the details as requested and a week later I had a reply asking for a photo of the meter. I’m over 80 and don’t do photos, I have told them so. Been here a fortnight now and still waiting. What troubles me is that no one is the slightest bit interested that there has been a supply for 5 years apparently without payment. There is efficiency for you! I wonder how much they will try to charge me?

Hi Pilgrim, thanks for sharing your story, that is definitely a strange one. Please keep us updated, I’d be interested to know what the final outcome is.

I wonder if this is a failing of the gas meter national data base. This keeps records of the reference numbers of all domestic meters and the energy companies use it to ensure the correct meters are used for your accounts. These reference numbers appear on bills. If a meter is changed by a supplier they notify the data base. I fell foul of this a few years ago when changing suppliers and they found 4 meter references on the database, but not the one I actually use. It simply delayed the changeover while this was sorted out.