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Your view: what’s your energy bill paying for?

Men with bulb heads

We asked whether you knew what made up your energy bills. The discussion launched a debate about renewable energy, supplier profits and confusing bills. Here’s a selection of your comments.

In his Conversation, our energy campaigner Josh Green asked whether you knew how much of your energy bills were due to weaning the UK off of carbon-intensive electricity.

We think energy companies should provide a detailed breakdown of what we’re paying for on our bills. Commenter EB agrees:

‘The subsidies to renewable energy generation should be explicitly identified on our energy bills. To do otherwise is dishonest.’

Vince P has no idea how much subsidies for green energy are adding to his bills:

‘There have been various references to the increase in our bills caused by subsidies for ‘green’ generation, but I still don’t know how much I’m paying for this, and what is the basis of calculation. I use electricity and heating oil (no gas in my village). Are these both subject to these additional environmental charges? These charges should be separate “line items” on bills – by agreement with the suppliers or by statute if they won’t provide this information voluntarily.’

Where do our energy payments go?

Malcolm R would also like to see more transparency from energy companies and government:

‘Ofgem publish an energy bill breakdown for an average consumer under six categories – between 58% and 67% being for fuel (Dec 2012) and 6-11% for environmental charges. I believe it would be useful if these categories were shown as £s on each consumer’s bill so you could see how your supplier uses its income.

‘The green energy component comes from government commitments and it is questionable how this is best paid for. As it, in principle, benefits everyone then it might be best if it came out of general taxation. However, since this would increase taxes – how popular would that be? – this is avoided by tacking it onto energy bills. Should we all pay in proportion to our bill – domestic, commercial and industrial users alike?

‘This green component is set to increase substantially. I would like to see how the government is investing this money. I am concerned about poor sources of renewable energy being heavily subsidised – on-shore wind farms, solar power, feed in tariffs.’

Energy company profits and price rises

The debate then turned to energy company profit announcements, with British Gas and EDF in the news last week. Richard Hart had some harsh words for the energy regulator Ofgem:

‘I’m a British Gas customer and am annoyed that yet again these utility companies are making huge profits yet still increasing bills. I think Ofgem should again look at the profits these companies are making and put a ceiling on how much our bills should increase. The higher their profits the least our bills should rise, but as we all know Ofgem is spineless and won’t do anything.’

Richard Scott comments on Centrica’s announcements last week:

‘The big news today is that Centrica (British Gas owner) made a 9% increase in its six-monthly profit this year, but they still do not rule out price increases this winter!

‘Ofgem needs to get a grip on these companies, who are pushing their luck – just like the banks – they don`t get it. There must be some way of curbing these excessive profits.’

We want the government and Ofgem to do more to rebuild trust in suppliers and to keep prices in check. We also want to see the government introduce simple pricing and ring-fence energy supply from generation businesses, so that you can see exactly what you’re paying for and be more confident that there is effective competition in the energy market.

Do you think energy companies could be more transparent about what it is we’re paying them for? What do you think about the latest profit announcements?

Comments
Guest
Paul Hunt says:
6 August 2013

“We want the government and Ofgem to do more to rebuild trust in suppliers…”

If this is what Which? is about, it’s as must a waste of space as Consumer Futures (which, at least, has some statutory underpinning).

You need to look at the share prices of the EU’s major players (four of whom have subsidiaries in Britain):
https://www.iberdrola.es/webibd/corporativa/iberdrola?IDPAG=ENWEBACCHERRAMIENTASCOT&codCache=13757854035269001

Similarly to the big British and EU banks, most have taken a battering over the last 5 years from both external factors and national policy decisions. They, again like the banks, have inviegled themselves in to a position of being ‘too big to fail’ (TBTF) and they’re repairing their balance sheets at the expense of final consumers. (Even though Centrica and SSE are ‘independent’ they fell foul of the policies of successive Labour governments to keep prices low and they hollowed out and leveraged their balance sheets to avoid a repeat of the Gordon Brown ‘windfall’ raid of 1997.)

Faced with a requirement to meet climate change objectives and the failure of the British energy market model to provide timely and efficient investment in electricity generation capacity, the Government is pursuing policies unilaterally that are futile, counter-productive and excessively costly. This is a European problem and may be addressed only by co-operation at the EU level. A new DG COMP energy sector inquiry is required that will lead to fundamental structural changes; it is totally futile looking for a ‘review’ of the structure of Britain’s energy industry. The EU ETS must be fixed and the trade deal with the US must be agreed to speed up delivery of US LNG exports to the EU.

But the Government is totally incapable of engaging effectively with its EU partners (even if many central, northern and eastern member-states are reaching out to Britain.) It fears it would drive its core support in to the arms of UKIP and close off Tory party funding from the energy industry and the renewable energy subsidy junkies.

So we’re left with the usual dysfunctional and excessively costly muddling through.

Guest

Paul, can you please explain the meaning of ” DG COMP,ETS , and LNG” . Thanks.

Guest
Paul Hunt says:
6 August 2013

Dave, my apologies. I’, m too close to these trees and expect everyone else in the wood can see them. DG COMP is the Directorate-General for Competition in the European Commission. It is an extremely powerful body dealing with competition issues covered by the EU treaties. It has very strong powers to investigate companies which may be in breach of EU competition rules, to make findings, to enforce remedies and to levy fines (for example, up to 10% of a company’s global revenues). It is far more powerful and effective than the UK’s Competition Commission or Office of Fair Trading (which the Government is proposing to combine in a Competition and Markets Authority).

Much of national energy and climate change policy is governed by EU Directives to which all member-states have given their consent either unanimously or under Qualified Majority Voting. (Many national governments, and the UK Government is particularly adept at this, often convey the impression to their voters that certain policies are being forced on them by the EU’s institutions as if they never had participated in the process of negotiating and agreeing these policies in the first instance.

Over the last 6 years that there been a sustained effort by the EU’s institutions to increase the integration of the EU’s electricity and gas markets. To a considerable extent this began with an energy sector inquiry conducted by DG COMP in 2007. Following this inquiry a package of EU directives and regulations for electricity and gas was enacted in 2009. These have been transposed in to national law in most, but not all, member-states. Previously and, to an extent, in parallel directives were enacted establishing the EU Emissions Trading System (EU ETS) and setting 20:20:20 targets for 2020 – 20% of renewable energy in energy supply, a 20% reduction on 2005 CO2 emissions over 2005 levels and a 20% increase in energy efficiency. However, the market power being exercised and abused by the big energy companies and their efforts to repair balance sheets damaged by their own actions, the recession and some policy interventions mean that the increasingly integrated markets are functioning efficiently and final consumers are being penalised. A new DG COMP energy sector inquiry is required.

The EU ETS is an EU cap-and-trade mechanism where CO2 emission allowances (EUAs) were awarded to large industry and electricity generators participating up to a limit which would then be cut progressively. The generators and industrial firms could trade these EUAs to generate a price. The higher the price the more incetive the market participants had to generate or using low or zero carbon energy. Over time the EUAs would be auctioned rather than given away. However, the recession intervened and energy consumption fell leaving the participants with bundles of unused EUAs. Not surprisingly the EUA price collapsed. A couple of attempts have been made at the EU level to fix the EU ETS so that it will generate an EUA price to allow the participants to contribute to the achievement of the EU’s 20:20:20 objectives. But the latest attempt is really a bit of ineffectual sticking plaster. A much more concerted effort is required.

LNG is liquefied natural gas. When natural gas is cooled down to around 160 C it becomes liquid and can be transported in ships, regasified and injected in to gas transmission systems. The shale gas boom in the US has oversupplied the market, driven down the price and many producers are bleeding red ink. They desperately want to export this surplus gas in the form of LNG, but the Obama administration is fearful of the impact on domestic – which will have to rise in any event. Wholesale gas prices in the EU are three times those in the US and LNG exports could begin to help to close this gap.

So, there’s a lot national governments and the EU’s institutions could do to reduce the costs of electricity and gas to final consumers and to reduce CO2 emissions rapidly and efficiently. But they would much rather pander to influential vested interests and pressure groups and impose excessive costs on the majority of citizens as energy consumers and taxpayers.

Guest
Paul Hunt says:
9 August 2013

Oh dear. It seems I’ve killed this conversation stone dead. It probably doesn’t matter. Despite publishing two well-researched reports which highlight the dysfunctionality of Britain’s wholesale and retail markets in electricity and gas, Which? does not seem to be interested in mounting a concerted campaign to demand the necessary remedies in the interests of all consumers.

But, even if it did, it probably would make no difference. The Government has embarked on a two-year re-election campaign and in this area is focused on getting its energy bill enacted, putting it to bed and managing the inevitably messy outcomes to minimise damage to its re-election prospects.

Because it is tackling symptoms and not seeking to remedy the underlying malaise in the British (and EU) markets for electricity, gas and carbon, unintended consequences will abound, energy bills will increase, there will be panicky efforts (but ideally after the next election) to ensure a sufficient electricity generation margin when large plants go off-line and the rent-seekers will make out like bandits at the expense of all citizens as consumers and taxpayers.

All perfectly predictable – and all avoidable. But who cares when there is an establishment collusion to ignore it – and consumers can be relied on to pick up the tab?

Guest

Hello Paul, we’re actively campaigning for affordable energy – we want energy prices to be simple, and for the costs that make up bills to be transparent, open and subject to robust scrutiny. We’ve actually launched a new campaigns website featuring our energy campaign to raise awareness http://www.which.co.uk/campaigns/energy-prices/know-the-issue/ – we your support to make Ofgem and the government to listen. Our reports of the problems with wholesale and the challenges facing the energy industry with decarbonisation are part of our work in this area.

Guest
Paul Hunt says:
9 August 2013

Hi, Patrick. Thank you for your response. I presume you mean your ‘Simple Energy Price’ campaign where you’re hoping to attract 50K+ signatures by early September to provoke a response from the Government. Good luck with that.

In any event, all you’ll get is the platitudinous bumph that DECC officials and Ofgem were compelled to cobble together to clean up after the PM’s unthought through, knee-jerk pledge at a PMQ last October to force energy companies to put all customers on the lowest available tariff.

In addition, it would be very likely to have unintended consequences that you and consumers may not welcome:
http://www.nera.com/nera-files/PUB_NewPower_0413.pdf

The ‘Big 6′ are repairing or building their balances sheets after years of being too greedy or too stupid or (for four of them) being exposed to the impact of self-serving, but stupid, policy decisions by governments in their parents’ countries. While they remain as an almost totally dominant informal cartel of vertically integrated oligopolists they will continue to gouge consumers irrespective of any behavioural constraints imposed on them.

This is simply tackling symptoms ineffectually, while ignoring the underlying malaise. The problems are structural, not behavioural.

The biggest problem is that there is abroad consensus on energy policy among the three main parties. The only division on the energy bill was occasioned by a mad-cap attempt by Tim Yeo to bind future governments even more tightly than they currently are. The only real political conflict is between the Treasury and DECC, but that boils down to a conflict about which group of rent-seekers should receive more favours. It has nothing to do with energy market competitiveness, sustainability or security of supply. Final consumers will continue to be hosed.

Economy and consumer-benefitting change will only come when enough MPs are exposed to the increasing anger and disgust of their voters and come to fear that their prospects of re-election might be in jeopardy. What is needed are efforts to inform and channel this disgust and anger, not token petitions to a government that will simply bat them aside.

But I don’t think Which? has the cojones.

Guest

Paul, you appear to have extensive knowledge of the energy market. I would be interested to know whether or not you agree that moving to unit pricing for energy, as is done for petrol or diesel, would be a good thing for the great majority of consumers.