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Update: reforming the energy market

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Profile photo of Simon Markall Simon Markall Public Affairs Manager
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Ofgem has announced plans for reform in the energy market. What can energy companies do to make you take an interest in your tariff?

This morning Ofgem responded to the Competition and Markets Authority’s (CMA) investigation into the energy sector.

As many of you will know we’ve long campaigned for a fairer energy market, and the regulator is looking to implement the CMA’s recommendations as quickly as possible.


Well done Ofgem

It’s not often we get to praise regulators, but we will where we believe they have acted in the consumer interest.

It’s good to see Ofgem swiftly take forward the remedies set out in the CMA’s final report. The CMA’s investigation took two years to complete and it’s right that consumers start to feel the benefits of reforms as soon as possible.

The remedies that the CMA set out will not be easy to implement.

Making the remedies work for consumers

One of the biggest challenges Ofgem faces is how it will get consumers to engage in the energy market. We’re pleased to see that it will be testing a number of approaches. One of these is a consumer database listing anyone who has not switched energy supplier in three years. These people could then be contacted by other suppliers with their deals and tariffs.

We have concerns that this database could lead to an increase in nuisance marketing from energy companies, so we will working with Ofgem to make sure this doesn’t happen.

Ofgem has also announced a price cap on bills for customers on prepayment meters. The price cap will be introduced in April 2017 for more than four million customers helping them save £75 a year on their energy bill. It’s hoped that the price cap will protect some of the most vulnerable gas and electricity customers who are least likely to switch.

What will a fairer energy market look like?

In terms of the future regulatory model, Ofgem continues its move towards a principles-based approach to regulation. What this means is that the regulator will encourage companies to focus on performing for their customers, in terms of delivering services that customer want, rather than jumping through regulatory hoops.

One way we suggest they could do this would be to look at developing customer challenge groups (CCGs). CCGs are independent and challenge each company on how it’s engaging and listening to its customers, including reflecting their priorities.

Make a switch

Nine in 10 households are still customers of one of the ‘big six’ gas and electricity companies (British Gas, EDF, Eon, Npower, Scottish Power and SSE). And one in five customers in England have been with their supplier for more than 10 years. So if you think you’re paying too much for your energy or are fed up with poor customer service, don’t put up with it, make a switch.

Update: 7 February 2017

The energy regulator, Ofgem, has announced a temporary price cap for energy customers on prepayment meters.

The regulator’s announcement follows last summer’s conclusion of the Competition and Markets Authority’s energy market investigation, which found that some of the most vulnerable energy customers are those on prepayment meters.

Energy customers who are on prepayment meters often have fewer tariffs to choose from than those who pay by direct debit, cash or cheque, and these tariffs are usually more expensive too.

The cap levels vary for electricity and gas depending on where you live and the type of meter you have. But, the price cap is expected to be in place until 2020 and will be reviewed every six months.

Ofgem believes that this price cap will help around four million households to save an average of £80 per year. This price cap will come into force on 1 April.

Our Managing Director of Home and Legal Services, Alex Neill, said:

‘While prepayment meter customers are going to get their prices capped this year, millions of other vulnerable energy customers are likely to face inflation busting price hikes.

‘This is why energy companies need to do much more to engage their customers to switch to a better deal this winter. If suppliers fail to do this, the Government and regulator need to step in on behalf of energy customers.’

Will this price cap help you or your friends and family? Do you think more needs to be done in the energy market?

Comments
313
RALPH N. says:
9 February 2017

Since the private companies where formed, the consumer has been ripped by them.
It needs someone who is not a member of parliament who does not have gains from Energy Companies, and is neutral, understands what it is like worrying to pay your way, heating one room, having to where coats in their home to keep warm, we are the third richest country in the world, so why treat our own population this way, other countries do not.

As soon the big six are broken up and there is a proper plan arranged to help everyone the better.

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JacquelineStaples says:
16 February 2017

I have just changed my supplier again thrid time in 6 months i went with Economy then Utilita came and promised lower prices, what a lie gas went up by at least £18.00 a fortnight elec by£15.00 i was beside myself i am on benefits as i am disabled, i have now gone back to Economy my elec down to max £9.00 a fortnight gas now thet have put me on right tariff will be about £15.00 a fortnight i am over the moon with them they have been really good they did have me paying 26p a day standing charge but i played up merry hell now i pay no standing charge as that is what they promised when i signed back with them. So well done Economy keep up good work i would highly recommend them.

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Harley Price says:
20 February 2017

I am writing to ask anyone who is thinking of changing suppliers in order to get better rates to please first consider going to the GREEN ENERGY SUPPLIERS. These companies, first and foremost, in fact absolutely vitally, only use clean, non-polluting, renewable sources for their power. When it comes to their tariff structure and charges, everything is crystal clear and transparent, theres no complicated algorithm that calculates your usage at 3am if your house faces north and you bought an ice-cream in the last month. Their pricing structures are so refreshingly simple its actually disappointing you don’t have to get out your slide rule any more to make sense of your billing. It ids a completely different experience to the major players in this field who deliberately make everything as complicated as possible so as to confuse and bewilder the customer and to let them veil their hidden charges. THE FACT IS THAT ECOSUPPLIERS ARE GENERALLY CHEAPER OR THE SAME PRICE> If everyone switches to renewable then we will force the major suppliers to divest from fossil fuels and start sourcing power from environmentally friendly sources if they want to stay current and relevant. Everyone knows the danger that fossil fuels present, we must move away from their usage asap. the climate situation is now catastrophic and the repercussions are moving far faster than the computer models predicted. Last year in May /June 2016, Germany was producing so much green energy that customers received negative billing, in other words they had minus figures on their bill due to the amount renewably sourced power that the country was producing. Everyone cites fossil fuels as being cheaper to source than renewables. This is a misnomer and is intentionally misleading. Fossil fuel gets immense amounts of governmental subsidies, without those immense subsidies it would be so expensive that we couldn’t use it. Funding and subsidies to the renewable power industry is pathetic by comparison and has been cut further . Even up the playing field in regard to massive subsidies and see which is cheaper, which is non-polluting, which is going to allow the world to continue turning with us still enjoying the ride. Because if we don’t move to renewables then we really don’t have much of a future and my grandchildren and yours will be amongst the last humans. Think about that. Please consider switching to GREEN ENERGY SUPPLIERS, its fairer for all living things. Remember that next line there’s an oil leak, or a tanker goes down, or we’re off to war allegedly to overthrow some despot we put in power a couple of years before who is thinking of selling to them Baddies and not us Goodies [whoever they may be , check a recent newspaper for a list current of bad guys and our latest enemies].

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James says:
13 March 2017

https://hardware.slashdot.org/story/17/03/12/2256215/millions-of-smart-meters-may-over-inflate-readings-by-up-to-600

“Millions of Smart Meters May Over-Inflate Readings by up to 600%”
Hi. Please can WHICH look into the above story. If this also applies to the UK, there could be a big problem.

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malcolm r says:
4 May 2017

Energy suppliers are frequently criticised for the prices they charge. This seems to partly be driven by some consumers unwillingness to change to a better deal. As there are around 48 suppliers out there a switching site such as Which?Switch should help someone find a good current deal.

However, the basic criticism is that suppliers charge “too much”. I would like Which? to examine the prices they all charge in detail and then explain just where they believe prices could be reduced. We would then have something on which to base the “too much” claim, and Which? could approach the CMA to demonstrate where the market is unfair for the majority of customers.

There are others, such as on pre-payment, in rented accommodation on a landlord’s meter, for example where other measures may be needed.

Putting a cap on prices from commercial companies implies that someone knows the details of their business and can show that excess profits are being made – if they are. Some say for the majority of suppliers as they simply resell a product (that someone else generates or buys) their profit margin should be around 1 to 1.5%. This would apply to many of the small suppliers who invest nothing in plant or infrastructure. Do Which? (and others) agree with this. Would this make for viable companies to keep competition alive?

For those who invest money in generation and gas purchase I believe the profit margin of around 4-5% is what a healthy company should be expected to return. Do Which? (and others) agree?

I have the view that where energy companies offer fixed term fixed price tariffs at significantly less than their standard variable tariff, one is cross subsidising the other. I do not see the point in this, nor why fixed price tariffs should be artificially low. I would abolish them and now, without the cross subsidy, have a standard variable tariff at lower cost that will reflect the natural variations in energy costs; this should be the default tariff that most consumers use with no necessity to switch each year. The structure of svts can be varied to suit different users; we would also retain time of day tariffs for all-electric users with a high off-peak requirement. I have asked Which? several times for their view, but without a response.

To summarise, I’d like to see Which? present well-researched and realistic proposals as to how tariffs could be constructed in future that we can then debate.

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duncan lucas says:
4 May 2017

Its very hard to get up to date statistics on gas imports but the UK,s need is increasing as time goes on . Now while many might not like me quoting figures from Gazprom the total of natural gas imports to Europe was 80 % of 178.3 billion cubic meters . Of coarse Germany being the hub and re-exporter (at a profit ) imported nearly 50 billion /Italy/Turkey -25 billion each – UK- 18 billion -all 2016 figures. Now why do I post that ? because this country would rather pay more for imports from other countries than buy from Russia.Russian Natural gas border price in Germany -US $ /per Million Metric Thermal Unit – March -2017= 5.81 (Index Mundi ) .com -commodities . Some Eastern block countries get better rates.

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malcolm r says:
9 May 2017

There seem to be confusing messages about energy pricing. This Convo says:
Save on energy bills
Paying too much for your gas or electricity? You could save hundreds each year by switching to a cheaper deal”.

Many people who can, don’t.

Which?’s position on a potential price cap in the energy market
9 May 2017
Alex Neill, Which? Managing Director of Home Products and Services, said:

“It is clear that millions of hard pressed energy customers are still suffering due to a lack of competition in the energy market.

“Measures that significantly reduce the cost of your bills overnight will be welcomed, but this cannot result in an increase in bills overall, undermine improvements in service or bring much needed innovation to a halt.

“Tackling this broken market so that it works for everyone must be the priority for the next Government.”

It is now proposed there should be a price cap on SVTs, seemingly on the basis the energy companies overcharge by £1.4 (could be £1.7) billion a year. Yet energy companies’ profits in excess of cost of capital are said to be £550 – £800M. So I don’t see how an overcharge of £1.4 billion can happen if profits are only up to £800 milliom. I’ve a simple mind an no doubt someone will explain all this.

Some say the companies are inefficient. I think if that were the case the shareholders would be saying something about it.

My view is, scrap the seemingly subsidised fixed price 1 year deals and reduce SVT’s accordingly. Let Ofgem monitor market costs (wholesale energy costs, transmission charges etc) and step in if companies look to be making too large a profit – maybe rebate their customers. But no government has the competence to intervene in commercial markets without unintended consequences. 48 energy suppliers should be a competitive market.

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John Ward says:
10 May 2017

“Paying too much for your gas or electricity?“: That could mean either (a) more than you can afford, or (b) more than is justified in view of wholesale prices and transmission etc costs. It’s about time Which? told us how much gas and electricity should cost before doing the usual populist sloganising.

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bruce halsall says:
27 July 2017

Hi everyone. why when energy prices to households is rising do they do a double whammy, by in some cases doubling the standing charge rate. this puts the cost up even more per bill. Inflation low , interest rates very low, wages low, costs low, and austerity for consumers not business. 100% rise in standing charges in my opinion is outright theft in what is classed already as rip off Britain.

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DerekP says:
18 August 2017

Hi bruce – for zero standing charges, you could consider moving to Ebico Zero.

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duncan lucas says:
17 August 2017

As this discussion is about energy prices this is certainly relevant but not “politically ” correct . As you know I have posted several times on the USA “enforcing ” its LNG on the EU /Europe while imposing sanctions on anybody helping Russian North-Stream 2 which is blatant piracy and “cowboy ” methods of America First Policy . To those not biased/ bigoted/ or believing everthing that comes out of Congress then the facts are that the USA does not have the capacity to supply the whole of Europe with its gas -shortage of LNG terminals in the USA+ Europe , insufficient gas production, shortage of tankers for transportation . They are operating an anti-competitive NON capitalist /non-free trade policy by force . Current estimates= 1000 cubic metres of US LNG on the EU market -$250 this is unprofitable for Europeans – Russian/Gazprom gas= about HALF that but its not profitable for US businesses because the same gas sold in Asia /Latin America is over $300 . There is more but that is the relevant part. “Energy Security “= big US profits -no flies on the Donald if you cant use reason use force.

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John Ward says:
17 August 2017

I consider that market forces in pricing wholesale energy supplies should prevail and not brute force by the USA for political reasons. What I do not know, and perhaps you can enlighten us, Duncan, is how America is imposing their LNG on the European market. As you say, if there is not enough capacity to supply their gas, so how can that be held up as a reliable source? I think all European countries must seek energy supplies at the lowest sensible price coupled with abundant volume and security of supply. I cannot see any reason why we and other countries should not trade with Russia; the UK is possibly less dependent than most and US pressure is probably most keenly felt by the Eastern European members of the EU such as Poland and the Baltic states; they are in a precarious position from either direction and we should do whatever we can to protect them from any abuse of power.

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duncan lucas says:
17 August 2017

Under normal Free Market Capitalist rules+ international Regulations countries should have the ability to accept the lowest bid commensurate with ability to supply . When a country dictates a policy towards another imposing strict sanctions on Germany if they go ahead with NS2 that isn’t commercial pressure but rule by diktat usurping the free will of a free country to decide what is in the interests financial and economic for its own citizens . By obeying Donald they stand to lose many $ Billions as they are the European hub for Gazprom and can get the gas at a concession and charge their own prices for re-export which they already do to other EU countries who stupidly are willing to pay extra for the same Russian gas due to political dogma that is dictated 1000,s of miles away. Thats what I call imposition Ian.

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John Ward says:
17 August 2017

Thanks, Duncan, but I am still not clear. Are you saying that the energy companies that buy the gas from Russia are being told not to do so by the USA and being told they must buy LNG from America? Or is this being implemented by EU governments – under force of US sanctions – who are then coercing their energy companies to comply? I am interested in your comment about Germany and the Nord Stream 2 gas pipeline in which Shell and others together have a 50% stake; as I understand it they are not convinced that an American Act can interfere in their European trade. Are you able to post a link to an authoritative article on Germany’s position? I am not sure what sanctions the US can effectively impose on an alliance of the EU and Russia.

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duncan lucas says:
17 August 2017

John-he German government is treating the US orders as “international legislation ” although its nothing of the sort and complying with it even if its totally against their own economic desires , other countries like Poland and the Baltic States are giving full support to it including Ukraine which is actually buying re-exported Russian gas at a higher price than if they bought it direct from Russia . Ukraine is actually buying US coal at much higher prices than Russia was selling it to Ukraine. Most of the EU apart from Italy, Austria . and a few others are more than willing to obey Donald even at their heavy losses in trade . This countries media has a lot to answer for by censoring on a scale equal to WW2 whats really going on with the biggest push since WW2 on Russia,s borders trying to get Putin to make an aggressive move so that they can justify an invasion of Russia which the Donald has called as being one of the “axis of evil ” ( while he invades country after country ) I am trying to chose a link that would get you all the info there are many.

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John Ward says:
17 August 2017

It all seems a bit preposterous and over-inflated to me. I am curious to know what “orders” these are and on whose authority they have been issued. The President of the US has no executive authority outside of America. Basing a small amount of military hardware in territories bordering Russia is hardly a ‘push’. I have seen no evidence that NATO wishes to destabilise Russia or provoke a confrontation. I think President Trump needs to look behind him and sort out the problems in his own backyard instead of posturing in front of President Putin.

This is going way off-topic now but I await with interest anything you can reference as reliable background information.

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duncan lucas says:
20 August 2017

Getting figures out of this country is hard John and I know you are not going to believe radical websites nor even Russian ones but -Independent – Estonia-800 UK troops -Latvia-1,200-Lithuania -1,200 German troops -Poland-4000 US troops -250 tanks etc , that is very conservative figures – its been admitted its the biggest build up since the cold war /WW2 in 2019 those figures will double . A US General has said that that the US will send 40,000 troops to Europe in the coming years . Germany is paring for war with Conscription Draft Orders being secretly sent out to doctors telling them to rport for duty , 2 doctors have already disclosed this to report to a military centtre within 8 days of receipt and the German government warned citizens to stockpile food+water in the event of an emergency that threatens our existence .One day later the Czech government began preparing foe the worst .In Finland citizens were told to stockpile food+water , to prepare for something bad .- Russia mobilizes (August 29 (2016 ) Reserve Army . And Britain —— silence is golden -golden – the Hollies . there is more but it just gets worse. I am not asking you to believe me as you probably wont but they cant keep silent here forever. I just think the truth should be told . This does not take into account the latest missile bases installed surrounding Russia nor the Black-sea build up nor our spy planes constantly buzzing Russia,s borders .nor the Baltic Sea build up . Now John just think- if Russia did the same on Americas border ?

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