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Putting customers at the heart of our energy market

With last week’s news that the new energy price cap will come into force this winter, our guest, Claire Perry MP, explains the government’s approach to improving the energy market for consumers.

Energy bills make up a large part of families’ outgoings, with households on the lowest incomes forking out more than 8% of what they earn on gas and electricity.

That’s a considerable strain on household finances and it’s made worse by market failures. In 2016, the Competition and Markets Authority estimated that customers of the ‘Big Six’ energy suppliers paid on average £1.4 billion per year more than they needed to.

It’s great to see the number of suppliers in the energy market has rocketed to more than 70 from just 12 in 2010, meaning more choice for consumers. The government has encouraged households to switch supplier, with nearly one in five switching in the year to May 2018.

While this is encouraging it means far too many people are still paying more than they should. Millions of customers on poor value deals are paying over £350 a year more on bills than if they shopped around and switched to the cheapest tariff available.

I know many of you feel strongly about this issue, more than half a million people backing Which?’s campaign for fairer energy prices.

Unfortunately energy suppliers do not reward loyal customers as they should.

Putting consumers in charge

The government is intervening to protect the most vulnerable customers, and we’re beginning to see real improvements across the industry.

New technologies, such as smart meters, are making it easier for consumers – particularly those on pre-payment meters – to keep track of their energy use. And more than 12 million smart meters are operating across Great Britain.

In the longer term, smart meters will be a cornerstone of a smarter, more flexible energy system, putting an end to estimated billing and helping people choose the best deal for them.

Protecting consumers now

While we continue to fix the market, we need to keep protecting customers in the short term. That is why we are bringing in a temporary cap on default tariffs and standard variable tariffs.

Over the summer it gained Royal Assent, ensuring it will be in place by December – providing much needed relief to households across Great Britain.

The cap will be set so that as well as protecting customers, it will drive efficiency and maintain incentives for competition within the energy market.

This cap is a necessary short-term intervention, not a long-term solution, and will only be in place until 2023 at the very latest.

Innovative suppliers are bringing new products and technologies to households across the UK, and I am confident we will soon have a truly smart, technology-led energy market with customers at its heart.

This is a guest article by Claire Perry, Conservative MP for Devizes and Minister of State at the Department for Business, Energy and Industrial Strategy. The views expressed here are not necessarily also shared by Which?.

kel meyler says:
12 September 2018

The Energy saving market is giving false information it is hi-lighted as save £200, £100 etc etc but in truth the figures quoted are confusing because it is referring to savings if someone is daft enough to allow their energy provider to switch them on to a standard and more expensive tariff when their fixed tariff comes to an end. Now that is a no brainier but even if you switch every year you will find what ever energy company you use the unit prices in all cases will have increased on what you paid the previous year, unless someone can say different. The main hope is you can find a supplier who’s unit prices are not greatly increased to what you paid the previous year. The energy industry at the moment is a vast profit maker for the energy companies and I will be more than surprised if they do not find a way round the impending cap and continue to raise their prices every year government energy cap or no government energy cap.

DerekP says:
12 September 2018

Claire, thanks for the above post and welcome to Which? Conversation.

If the figures suggest that the average household is wasting about £1/day by not switching suppliers, I suspect than many just choose “not to bother” switching, if they can afford not to worry about every penny.

In contrast, I fear that many of those with most to gain by switching can’t or won’t do so for a host of other reasons. Over the years here on W?C, we’ve discussed many examples of this, e.g. tenants where the landlord won’t allow switching and those locked into prepayment schemes, on account of precarious finances and/or existing debts.

We’ve also seen wide support for the view that anyone who switches is subsidised by those that don’t. This seems to be a reality of our current privatised free market and doesn’t seem like the best way of having universally fair prices.

Welcome Claire. I hope you can find the time to drop in occasionally and answer some questions.

Is there any document that provides that explains the advantages and disadvantages of smart meter?

The cost of the roll out is enormous and is being payed for by all customers, whether they have smart meters fitted or decline the offer. Many of those that have been fitted are of the old SMETS1 type that may not be compatible with a different supplier. In my case, the smart meters were replaced by new ones and I was given a new display unit. Unless someone tells me otherwise the old smart meters will be scrapped and I still have the useless display unit. Companies have been allowed to continue fitting the old meters, that will either have to be replaced or possibly updated. Some of the customers who are contributing to the costs of the smart meter roll out are struggling to pay their bills.

Why is it not a requirement for smart meter advertising to state that there is no need to have smart meters. (The only reason I have them is because I bought a house with them.) Goodness knows how much all this advertising costs and once again, the poor are contributing to the cost.

I welcome the price cap but this will only prevent some of the exploitation of consumers by the energy companies.

The intro begins …”customers of the ‘Big Six’ energy suppliers paid on average £1.4 billion per year more than they needed to.”. This has been criticised before as likely nonsense, like Brexit numbers. First, it seems to be based on everyone on SVTs changing to low cost fixed price tariffs. It ignores the basic fact that, if that happened, all those low-cost tariffs would rise very substantially to restore profits. In 2016, the “big 6” profits were £1,032,000. So how could they possibly have overcharged by £1 400 000? Are they all supposed to trade at a substantial loss?

Unless there is some information I’ve missed, this sort of very misleading information should be dealt with before it appears in public. However, perhaps Claire Perry would justify this claim?

@awhittle, Which?, I think you have a responsibility to look at what information is published and where it seems at odds with reality, have it checked before you seem to endorse it. This misleading figure has been raised and criticised with Which? in the past.

Competition is good, but do we need 70 energy suppliers? It hardly makes the market simple to negotiate. Many of these will be very small companies, profiteering, opportunists, offering low fixed price tariffs while energy prices were stable, buying at current prices. When those wholesale prices rise some will be in financial trouble as they do not have the resources to cope. Or, having taken their profits, they will just shut down. That means customers will suffer, accounts terminated and transferred, and someone (guess who?) will have to pick up the bill. It has already happened to three suppliers this year.

I believe the basic problem is that the low cost fixed term fixed price tariffs are loss making in many cases, with the energy companies profits coming from overpriced standard variable tariffs. This subsidisation should be stopped. Generally we should pay what energy costs, so variable tariffs should be the norm, as with, say, petrol and diesel. Getting rid of the loss-making fixed price tariffs would enable SVTs to be significantly reduced in price. All would benefit from fairer pricing and fewer “artificial” tariffs.

Instead, we distort the market by placing a cap, when we can still source our energy cheaper. There are currently 98 tariffs that are cheaper than the cap – up to £267. 36 are £100 or more cheaper.

Hi Malcolm. I’ll fill in here for Alex as I’m responsible for our content. All our guest posts make it clear that the views and opinions expressed by the author are not necessarily shared by Which?, and this of course applies to guest MPs, ministers and other politcal figures.

This post was provided by Claire and her office, and if there are views here you feel need to be challenged, then the comments are absolutely the right place to do it (as you have done). I’m in contact with Claire’s office and I’ve already made them aware of the points raised – I’m hoping they’ll be able to get responses to all your queries as soon as possible.

I too am looking forward to seeing responses – Convo is after all at its best when dialogue is opened.

@gmartin, thanks George. On the ball as usual.
In a moment of sheer frustration I did write to Which? pointing out the apparent false claim of £1.6bn overcharge. In a further moment of madness I also wrote to my MP, spelling out the logic that showed how this claim appeared to be totally unjustified.

I also questioned the apparent subsidy of fixed price tariffs by SVT customers. Part of the reply from Dept. for BEIS said:
…. This means suppliers cannot charge customers who are on standard variable tariffs more to subsidise customers on fixed price deals. Instead, fixed price deals are generally cheaper than standard variable tariffs because they require customers to manage their energy accounts online, take their own meter readings and make monthly payments by direct debit….“.

I had pointed out that, at that time, the difference in price to an average user with any one energy company, between their SVT and fixed price tariff, was between £114 and £297 a year. Savings of up to 25% of the SVT price. As the quoted average admin cost of an energy supplier is under 16% it seems ludicrous to claim that the savings are due to the reasons given by BEIS.

In response to my further questioning of this an alternative explanation was given that it was down to fixed price energy deals being based on current prices, with SVTs on longer term purchasing arrangements. There is more reason behind this argument. However, since wholesale energy costs contribute only around 40% to your bill – say £450 for an average user, I find it hard to believe that a £297 reduction could be accounted for by that approach. That would suggest paying only one third of the cost for the raw energy compared to an SVT customer. Is that credible?

I’m quite prepared to be put right on my numbers if someone who is expert produces more information. But at present I’d like to suggest that information is looked at much more critically when it is being put in the public domain. I see no reason why Which? could not have queried Claire’s numbers. We don’t want political points being made that are unsubstantiated,

With regard to switching suppliers, why is there so little advertising by the energy companies? Why do we have to make all the effort to hunt round for more useful tariff structures or bundles, lower prices, better service, or superior compensation in the event of a supply failure? For everything else we buy, companies advertise the advantages of doing business with them, showcase their products, and extol their customer service. I appreciate that gas is gas and electricity is electricity, but it’s not all about the product.

I don’t bother much about electricity prices because it is a minority energy source for us, our consumption is relatively stable from year to year, and we spend much more on other essential domestic supplies. But gas is something else and I am looking for a tariff with

:: no [or quite low] standing charges,
:: low unit prices achieved through the scale of the business and good procurement,
:: a strong and long-tem reliable supplier,
:: an efficient and sensible billing function [no excessive accumulation of credits],
:: good environmental policies,
:: a fast and efficient customer service operation with no long delays or clueless operators,
:: sensible individual discounts for dual-fuel, and paperless billing,
:: direct debits on my choice of payment day,
:: no exit penalties,
:: and clear and timely warnings of contract changes and price adjustments

As I have done before I can spend an hour or so going through Which? Switch or other comparison websites but they do not provide all the information I would like about the companies themselves and they certainly don’t allow me to filter my requirements as I have set out above.

I’d like to see an Ofgem switching site with every tariff represented, paid for by a levy on all in the industry. Commercial switching sites can pick and cjhoose whose offers they display, so you won’t see the whole market by any means. Ofggem could advertise this as a service, internet or phone, and customers would know it was impartial (I hope).

We have spent enough money on promoting smart meters – not only of very dubious value to consumers but costing the country over £12bn. Pity, as John says, not to publicise switching. Although I doubt the energy companies would want to do this as it would take very profitable customers away from their SVTs.

I think an Ofgem information and switching site would be the ideal Malcolm. The number of current customers would be a useful piece of additional information for me because I am wary of dealing with tiny suppliers that can just go phut! and leave us in the dark. I have gone through all the first division players over the years and dislike most of them, and now that SSE is merging with NPower this puts me in a dificulty. I need to take a closer look at the second division now and possibly go back to The Cooperative Energy although they have slipped from favour lately.

At present, those who switch suppliers incur costs that are shared by all customers including those who do not switch. That means that those who are struggling to pay their bills or not mentally up to switching have to contribute to the costs. Perhaps those who do switch should be the ones that foot the bill.

I’d suggest a significant cost is when Which? takes a payment from the chosen energy supplier when you change supplier through Which?Switch. Most suppliers seem to be on its list. I’d prefer to see Ofgem offer this service and not introduce 3rd party beneficiaries into the scheme, at our expense.

I don’t see why any individual should be penalised financially when they choose to move from one energy supplier to any other. No more than they should if they decide to move insurer, bank account, emergency breakdown cover, credit card provider, broadband, phone contract……. I suspect apart from acting as a deterrent to exercising freedom of choice many people would be up in arms about being made to pay for simply avoiding being charged too much for a product.

I can see that you don’t want to pay for switching supplier but why should much of the costs of you (or me) switching be paid for by those who don’t switch? I’m glad to see some insurers being honest and including the cost of setting up a new policy in their quotations.

Why would it then be “dishonest” not to show the cost of setting up a new account?. Should everyone we deal with, where taking our details is a part of opening an account, have to show how much that costs? This is all part of general administration costs that all business incur. If we need to communicate with a supplier, or indeed any organisation, by phone, email or letter, that will incur a cost at their end to deal with it. Should the few who do so have to pay that cost individually?

I’d still prefer a commission not being paid to Which? when I do switch through them – or any other 3rd party. Would you support Ofgem performing this service instead?

I am keen on transparency and would like to see costs shown.

I do not understand why switching services charge can charge as much as £60 for their services, though Which? Switch charges between £15 and £45, though the reason for this wide range is not explained.

What I would like is energy pricing that is sufficiently simple that anyone can compare prices from different suppliers without needing to use a computer or phone service to do the job.

Using Which?Switch is simple and gives you all available offers in ascending order of cost (based on the estimated usage you input).

My approach is to use the service and then go to my chosen energy supplier, which arranges the transfer. I don’t want other people paying for me using a switching service.

Andy97 says:
12 September 2018

I must say this reads like the usual self-congratulatory drivel that we routinely see from politicians. Even as Ms Perry prattles on about the decisive move of the price cap, her civil servants continue moves like Hinkley Point C and other hugely expensive nuclear follies that will double the cost of wholesale baseload energy beyond current prices. The idiots at the regulator, Ofgem, continue to complain that the market doesn’t work for consumers, whilst they rubber stamp the processes, systems and regulated investment plans of their fantasy low carbon energy system. Not to mention the minor fact, that if after around thirty years of continuous aggressive and interventionist regulation, the market still isn’t working then it suggests that the regulators themselves are not up to the job.

This government are no different to the previous Conservative, Coalition and Labour ones – dictating the same complex, expensive disjointed energy policy that will cost consumers dear, and then dishonestly blaming the retailers for the cost. I’d wager that Ms Perry knows little or nothing about energy, about energy technology, about the long term cost implications, I’d also wager that she doesn’t care.

Which? have not covered themselves in glory here, having done little or nothing to explain or challenge the various follies of energy policy. Increasingly I find Which? irritating – a sort of general interest magazine for wealthy pensioners, ineffectual in proper engagement on consumer matters, and increasingly shallow in its assessment of products and services. I might also add that the inflation busting 11% price rise this year from Which? is another reason for concluding that the organisation has totally lost its way.

Patrick Taylor says:
12 September 2018

Perhaps a discussion on the three small providers who have gone belly-up in the last 12 months would provide some realism to the politician’s post. Ms. Perry could explain about the world pricing of energy and how these small firms found buying supply in a cheapening market easy but simply cannot manage in a rising price environment.

I feel faintly cheated by a lightweight contibution full of platitudes -* ” Unfortunately energy suppliers do not reward loyal customers as they should” – and promises that sound tenuous and unlikely:
“Innovative suppliers are bringing new products and technologies to households across the UK, and I am confident we will soon have a truly smart, technology-led energy market with customers at its heart”

* You will appreciate a certain irony in Which? offering an introductory rate to new customers, and as far as I am aware has never offered me or anyone else a bonus of say a free year of one of the other magazines in 30 for my support. But perhaps I misunderstand loyalty and how this works.

Peter Russell says:
13 September 2018

I found it interesting that the dua-fuel £1136 cap was presented only in the context of people who might be able to pay less than this amount by switching.
There must be thousands of homes like mine where even on the lowest rates available are still paying much more than 1136 p.a. (in my case we will always be paying more tha £2000 p.a.).
But I suspect that once the cap comes into force, the capped tariffs will suddenly be unavailable both on switching sites like Which and by direct application to utilty companies. Otherwise, those of us with high bills will all be rushing to get onto the capped tariff.

Peter, unfortunately the cap, as far as I know, is only an example for the customer who uses the “average” amount of energy on a dual fuel tariff – 3100 units of electricity and 12000 of gas – an Ofgem “medium” user. I presume if you use more than that the cost will be pro rata based on the capped tariff unit charges.

The cap is to help protect those on expensive standard variable tariffs, Peter. These include many who don’t engage with the market including many who cannot cope with financial matters. It will not help those of us who keep an eye on prices and move to cheaper fixed tariffs.

Here’s another one leaving the ship:

13 Sep 2018
Ofgem to appoint Octopus Energy as supplier of last resort for customers of Gen4U
Gen4U, a small supplier with approximately 500 domestic customers, is ceasing to trade with Octopus Energy being appointed as supplier of last resort.

I wonder what the critical mass in terms of customer numbers or quantities of energy supplied is for a viable energy company. If low tariffs are the chief appeal then the reduced income will not sustain the operating overheads and the margin on energy costs will become too tight if wholesale prices move upwards.

Jim Hawkins says:
15 September 2018

All this rabbiting about saving a £100.00or so a year is total rubbish, it doesn’t add up to all the time wasted in looking at all the various options, then having to wait for it all to go through, and if you have one of the early so called smart meters it won’t necessarily work on the new network, and all this for the price of about half a pint of beer a week! Get real!

DerekP says:
15 September 2018

I think that’s why a lot of well ‘orf folk don’t ever switch.

But bigging up this issue helps our Government give the illusion that it actually gives a stuff about helping the poor and needy.

16 September 2018

Another ‘puff’ piece from an MP who claims every penny (and more?) spent on expenses that we tax payers pay. She says nothing about the energy market, or the mess her Tory party have made of energy policy. Why have the Tories massively cut funding to renewable energy? Why have the Tory party ensured that clean, renewable energy produced in Scotland is charged fortunes to connect to the grid? Why has the Tory party ensured that the big energy companies reward failure at the top, fix prices, and dodge their taxes? These are some of the questions this incapable ‘Minister’ actually needs to answer rather than blandly repeating that smart meters will cure everything – wonder how many shares she has in smart meter companies?

@gmartin, George, you were going to contact Claire Perry or her office to address some of the points raised early in this Convo. That was two weeks ago. Have you had a response? If not, perhaps someone at Which? could investigate the points and see what view they have.

If Claire’s points are totally valid and supportable then all is well. If they are dubious or unsupportable then that should be explained. Incorrect information should not be allowed to stand when it comes from an official source. Well, I don’t think so, anyway.

Afternoon Malcolm. I did, and I’ve not had a response from my contact. I will send another email today to let them know we’re waiting for their input.

@gmartin, still no news George?

Not yet, Malcolm. I’ll chase.

@gmartin, still no “Clairification” on the £1.4bn savings, George? I’d give up. Thanks for trying. However, I’ve just queried the claim as a layman, using available figures and a common-sense approach. Can Which? not look at this claim in the same way and give their view on whether it is valid or not. It smacks of a £350m a week Brexit statistic to me 🙂

No response to my emails I’m afraid, Malcolm. I tried my best. I’ll see if there may be someone here who would be best placed to take a look at it.

Thanks George.