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Update: reforming the energy market

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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

I’m with Ovo at the moment and happy with it, but if I were interested in switching again, I would want energy companies to be like petrol stations (an idea first mooted by Wavechange if memory serves). The price you see at the pump is the price you pay at the till. Deals and tariffs are there to bamboozle you into paying a “good” price for a finite period, and then forgetting all about it and being moved to a dearer tariff without you realising, or too soon for you to want to switch again, and again, and again.

To be honest I don’t want an energy market. Which? keeps talking about the Gang of Six, but once you’ve switched to, say, Ovo, like me, do you then have to keep an eye on deals and tariffs for ever and a day and never, ever, ever breathe a sigh of relief? I want one national company with good customer service and one fair tariff for all, a tariff which includes enough profit to plough the money back in for useful things such research into renewables and technology, for decent maintenance and repairs, I don’t want the money to be ploughed into the wallets of chief execs and share holders. Ofgem’s plans are a move sideways, not forward. Profit stills comes first, not service, not the environment.

There are small enterprising companies, but for that my feeling would be that natural monopolies should be owned by the public.

Good news as it is, I think that ofgem have only done this and the ” big six ” have only agreed to it because ” smart meters ” are soon coming, and they-( the big six )-will be seen as the-( in my opinion )-money hungry leeches, who think nothing of wringing the most vulnerable in society, they are.

You are absolutely dead right The energy market was stolen off us the taxpayer by Thatcher and given away for £5 billion when it was independently values at £26billion I worked in the industry and at the time it was privatised the manager of the area I worked in said “The shareholder is of paramount importance and we must give a good corporate image to the city That said it all It should be renationalised

Gail Reed says:
3 August 2016

exactly. I don’t want to keep switching. why should I? prices should be reasonable anyway. Fuel poverty where tens of thousands of people die of cold each year because they can’t afford heating is totally disgraceful and uncivilised. Why then blame the victims. Putting the onus on the customer when the profits are totally ridiculous. I call it overcharging.

Lorna says:
4 August 2016

I agree with everything you say and feel Sophie.Lorna

According to the Annual Fuel Poverty Statistics Report 2016, over ten percent of English households were in the official fuel poverty classification in 2014. It might be even worse in Scotland, Northern Ireland and Wales.

Reliable figures for the number of deaths due to fuel poverty are not easy to find but it is certainly in the tens of thousands of over-65’s each year as Gail says above with some estimates of up to 25,000.

I thought I had changed to a different cheaper tariff but had not seen further instructions on computer. I had specifically asked not to have to do anything on line as I had a certain illness at the time . So I was never moved to the cheaper tariff. And all told I agree with others that what we want is a simple list of all companies’ prices which shouldn’t vary according to how much you use etc. All this looking at and working out how much you have used and spent is an absolute pain. A simple list price of every company’s costs is what we all need . No wonder still so many people haven’t bothered to attempt to change suppliers.

Today’s Which press release:

“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).

As I cannot see why the new rules will make anyone who hasn’t already switched do so now, I think your suggestion is a very good one. I would also abolish the standing charge though I know you disagree with this. Additionally I would make prepayment meters work on units not money. Then people could top up at whichever supermarket was offering the best price that day.

Sophie, It was Which? that proposed “petrol pump prices”, on the basis that we Brits can neither add up nor let comparison sites do the sums for us.

There are already “petrol pump tariffs” – no standing charge. But work it out and unless you are a very very low user you will pay a lot more for your energy.

There are fixed costs in your energy supply. Only about 43% of your bill is actual wholesale energy; the rest is transmission charges, taxes, connection maintenance, account admin, meter reading….some of which depend upon consumption, some of which do not. So the basic question should be, as we all incur these fixed costs, should we all pay for them? Or do some expect to pay less fixed costs, subsidised by others?

A typical competitive tariff can be looked at as it stands, with a standing charge, or with the standing charge absorbed into unit prices of a medium energy user. So the medium user would see no change. A low user – who may be a professional couple, both earning, out all day, well insulated house with low energy appliances, would “save” around £81 a year with “petrol pump pricing”. A high energy user – maybe elderly, unwell, in all day needing more heating, washing , poorly insulated house, draughty would pay £52 a year more. And if you are all electric, you’ll squeal.

Most of us have little choice in the amount of energy we use; it is determined by our personal circumstances, needs, type of house and so on. So why should a poor high user (who already has a high energy bill) be expected to subsidise the fixed costs of a low user – who already has a low bill. That is an inequitable and unfair proposal. It does not differentiate between those with the ability to pay, and those without.

If energy companies abolish standing charges and roll them into unit charges, in a cold year when we all use more energy, they’ll recover more “fixed costs” than they need and make excess profits. In a warm year when we use less energy than predicted they won’t recover enough to cover the fixed costs and the price might go up.

These sorts of proposals need thinking through very carefully. You might not like the end result. Fortunately, as far as I can see, CMA and Ofgem have not shown real interest in the proposal. Energy companies can introduce tariffs like this if they wish, as long as they are not imposed on everyone. We need choice.

Choice doesn’t exist when it comes to tariffs as all the energy companies charge the same for kilowatts used in gas and electricity The more you use the more you pay

Ronald, they don’t all charge the same. Worth looking on Which?’s comparison website Which? Switch, put in your annual kWh usage and post code and see what differences there are between suppliers. You might find it advantageous.

Without a shadow of doubt the only proper solution is to bring our utilites back into public ownership.

And no compensation for the companies and shareholder They got the industry at a bargain basement price We were robbed blind by Thatchers privatisation

The people who own the companies now are mainly foreign, partly state-owned, companies plus a lot of institutional investors like pension schemes, insurance funds, and savings and investment portfolios. The consequences and repercussions of nationalising these holdings without compensation could be extremely detrimental and with no guarantee that things would be any better.

Nationalise without compensation… end!!!

Charming.

Whose manifesto do you think will feature your idea?

Utilities must be returned to public ownership. We do not want corporations dictating to us.

It might be helpful if somebody at the energy company actually looked at one’s bill – or, in extreme cases came to see one – to advise on any way in which one’s particular bill seemed excessive for one’s address, and to suggest remedies. For instance, my own house – a fifties chalet bungalow, with a very wide roof which can’t be properly insulated owing to asbestos – can’t be heated cheaply, if I want to stay warm! I realise houses are no longer built this way, but a lot of us older people are stuck with them and detailed individual advice would be helpful.

I believe that no one benefits from this current crazy system. Changes in tariff, changes in Daily Rate, all gas, or all electricity, coming through the same pipe or same wire, but all charged at different rates. All having different Head Offices, different phone numbers, different everything, all coming through same routes. And the other big waste is the fact that to read meters we have 6 different people, arriving at 6 different times, in 6 different Company vehicles to read various meters in each street, road, close. Not long ago, 1 man arrived on his bicycle, parked on the corner, and read all the meters, before moving to the next street, road, close. This has added enormously to costs. 1 fair price, 1 fair Company, 1 meter reader, and there will be happiness and fairness for everyone.

“1 fair price, 1 fair Company, 1 meter reader, and there will be happiness and fairness for everyone.”

I’m sure some people would still find something to moan about…

No one benefits? The ripoff energy companies and their shareholders do

Victor – Most energy companies contract out the meter reading to keep costs down so one operative can check all the meters in a street. Most properties built in the last forty years have external meter cabinets so less time is spent than when it was necessary to gain entry. Those with smart meters won’t need a meter-reading visit at all.

Even in the days of nationalisation there were regional gas and electricity boards with lots of separate head offices. In fact, there might have been more than there are now with the big six dual-fuel suppliers and a number of relatively small companies who operate on a leaner basis.

Roger Harris says:
3 August 2016

I am in the process of switching from GB Energy who have arbitrarily decided to impose quarterly direct debit in place of monthly. This is unfair to not well off people on a monthly income, the customer should decide how they want to pay.

You can still pay monthly, Roger. Just send a cheque or set up a standing order. They won’t turn your money away.

I am tied into an opt out fee of £60 for each (gas and electricity). A total of £120 – a bit of a bribe to keep me with them. This should be stopped.

Did you agree to this when you took a fixed price contract that gave you a good deal? Plenty of suppliers offered them with no penalty, so they are the ones to choose.

Who are they ?

Try Which? Switch – price comparison website. Put in your usage and postcode and you’ll get a full list of prices with terms and conditions, including any early termination penalties.

Exit fees are usually a trade-off against the unit price or other tariff terms.

I think most energy company deals are cons simply to get you to go to them for a low price for a short time, then it gets hiked up and you are penalised if you change supplier within a certain period. To me its no better than fraud and I do not want them or anyone else with a ‘good ceal’ phoning me. I am currently with Good Energy who are eco friendly and in my estimation provide a good service

A fixed price contract, if that is what you choose, lasts for at least a year. They cannot raise the price in that time. A Standard Variable Tariff can change as costs change, but their is no barrier to moving to another cheaper contract or supplier. I am not sure where you see the “con” or “fraud”?

Fixed tariffs are a con You end up owing them money at the end of the contract if you have used more gas and electricity that was set when you signed up

Fixed price means your unit costs won’t change. You’ll still be charged for how much you use. Your annual usage is only an estimate ofcourse. Submitting monthly meter readings is the best way to keep your account in order.

PPP would be better for me.

Energy suppliers over estimate use thus having a saving at your expense, I asked for the 89 pounds back and they doubled my monthly payments!

tony collins says:
3 August 2016

i want to see utilities back in public ownership not money making conglomerates.

I do so agree. The same goes for railways and water companies.

Well we’re half way there already with the railways. Network Rail is now part of the Department for Transport and it’s lost its way already on costs and achievements. Most rolling stock is now specified by the government and new trains are entering service without wi-fi and charging points or with the wrong sort of engines. The excuses, however, are top-rate civil service grade beauties.

I have been in dispute with Scottish Power for over three years.Ofgem was absolutely useless, as they have no power, over contract violations. It is another government body wasting the tax payer’s money. They wasted 9 months of my time and gave me £15.00 as an apology.They have poor staff and very poor executives, who are more concerned about their image, on Twitter and Facebook

John says:
3 August 2016

It is good to see the regulators doing what they are employed and paid t do. Please also remember the people who for no fault of there own cannot get the benefits of dual fuel discounts and have to rely on off mains oil or gas.

Good points John. As you point out, the dual-fuel discounts only mean anything where both fuels are available as mains supplies. The worst affected are those [e.g. in flats] who have to use electricity for all their heating, water-heating and cooking; many are indoors all day and cannot benefit from low night-rate tariffs.

B V Sant says:
3 August 2016

Re Energy. Why do we have to have Tariffs? all electrical units should cost the same.
I did change suppliers but not though Which?

Energy companies procure their supplies from different sources, over different timescales, at different wholesale prices, and with different economies of scale [e.g. number of customers]. Some also generate electricity or produce gas within their own organisation. Some big energy companies also have very large commercial supply contracts over which they can spread some of their overheads. Smaller companies operate primarily in the domestic market where the only way of keeping prices down is to run a very tight operation with a restricted range of tariffs but they are spared the government’s Energy Company Obligation levy. Undercutting the major suppliers is getting more and more difficult, however, and it is hard for new firms to enter the market.

Thank you John for that.
Why should the consumer have go through all BS?

DaveSuffolk says:
3 August 2016

I would like to see each company offering just one tariff per fuel that charges per Kw of energy used. There should be no cross-subsidy between tariffs and no penalty for changing supplier. The tariffs would be variable but the ease of changing supplier should make companies think hard before being the first to increase prices.
Extras should be charged separately (eg paper bills, green subsidies) and pre-payment meters should be available without charge to anyone who cannot pay by direct debit. Meters should be standardised so that they can be transferred to a new supplier if the customer switches.
All companies should be required to offer a comparison service that covers every company available, or sub-contract the job to an independent company like Which? The companies should pay a flat rate for it so the service is free to customers, there should be no commission paid when customers switch. Ofgem should test and certify the comparison sites annually and fine them if they are below standard.
The comparison service should be available by phone as well as online, with special help for older customers. Organisations like Age UK should be encouraged to provide the service.
Cold calling should be banned but the comparison service should be prominently advertised on every bill. Bills should be produced monthly without exception.
Smart meters should show at a glance how much energy has been used in the previous 12 months and the comparison sites should access this so their results are as accurate as possible.
Ofgem should keep statistics of customer satisfaction for each company and the latest figures for the company should be displayed on the heading of every bill along with a UK ranking. Comparison sites should show them for every company in their results table.
The new supplier should handle all the admin of switching. Switching should take no longer than one month and customers should be compensated for any delays or mistakes.
If these measures were put in place I would be confident that I could choose the best tariff and the best company, but if I made a mistake it would be easy to change again. Anyone in hardship and using a prepayment meter should be able to switch just as easily.

DaveSuffolk.

I want you as Prime Minister.

You’ve just about nailed every point.

Not a lot more I can say really………………….. and that’s significant as I post on here with some regularity.

Mike

A lot of what you say, Dave, is good stuff but taken all together it could be a sure-fire way of protecting the dominance of the big-six suppliers. It might add to the difficulty of smaller companies entering the market to boost competition.

John,

the smallewr companies, in my view, enter the market to obtain market-share at a low price and then revert to the profit-hungry style of the big “six”.
I’ve watched the spot price of gas in the UK for a few years now and until April of this year it was on a downward tren from Dec 2014. The big “six” did not reduce costs in line with this fall. Since April 2016 the spot wholesale price has risen and likewise, so has the retail price.

There’s a discon….nect between the wholesale and retail price structure. This shou;d be addressed by OFGEM (or the CMA report as a precursor to action by OFGEM).

But, let’s be honest here, this is unlikely to happen as Britain is reputed to be “Treasure Island” for all companies.

So, the only answer is to move to another supplier even if you save just £25-30 a year. It costs YOU nothing. It cost the departing company quite a bit and the accepting company, less – but still enough to make them think they should keep you once snared.

I fully agree with you, Mike.

John,
I wish I could actually type after a bottle of wine 🙂

Yes Mike. I can’t until I’ve had one.

Spot on Mike!

The big six are still very much in charge of wholesale and retail charges inasmuchas they are able to manipulate both, rendering smaller companies unable to compete.

Bad service as well as price should have been given more consideration by Ofgem although they have issued fines to some companies, but it is still quite a daunting task for the average consumer to plough through about 40 different energy suppliers prices, plus umpteen tariffs to find one who provides both good service and suitable prices without the help of consumer price comparison websites who, although necessary and helpful, only add to the overall cost of your energy bill.

If 9 out of 10 people are still not switching away from the big six then you have to question why? Sophie has provided some of the answers which demonstrate just how fed up consumers are with the whole energy situation. Switching may provide the answers but clearly it is not working.

It’s taken over two years for Ofgem to implement a fairer deal for prepay meter customers at a paltry £75 pa saving which is the good news, the bad news is whose going to subsidise the deficit? No doubt this has already been decided by big six tacit collusionary evaluation tactics.

CMA reported that many people recognise the cost saving in switching, are perfectly able to do it, but don’t see the saving as that important. Horses and water……..

Switching increased by about 10% in 2015. Around 66% of consumers are on standard variable tariffs.

We must be careful about the predicted savings, a bit like the EU £350 million a week. It is said that if all consumer came off Standard Variable Tariffs they would save £330 a year, totaling £1.4 billion. CMA estimate that the “sticky customers” who stay on SVT’s across the suppliers have lead to excess profits of £650 million. So if the total customer savings of £1.4billion are set against excess profits of £650 million it seems to me there is now a £750 million shortfall in revenue. How will that be redressed to give a “normal profit margin”? Well, prices for the fixed term tariffs will go up.

Put it simply, if the profit from SVTs is lost, fixed term prices will rise, so the £330 a year saving won’t happen. Personally I’d like to see the basic tariff as a variable one, no fixed term.

The current average profit margin of the “big 6” is just under 5%. That is reasonable for most businesses. I don’t know how the excess profits arise but maybe Which? can tell us. I’ve asked the CMA without success.

Tim Nelson says:
3 August 2016

Many people are dissuaded from switching gas and electricity because they do not understand kilowatt hours and/or they do not have a computer.

What they do not know is that many comparison organisations have phone numbers as well as websites, and permit the entering of usage in terms of how much is paid.

If the payment is a combined sum for dual fuel, people can guess the cost of each with a. 50:50 split. This will be close to the correct split, and will be corrected by the selected supplier as they build up a record of meter readings.

The use of cost instead of kilowatt hours and phone numbers should be emphasized in your publicity. Also, that the new company chosen will do most of the work and make the process easy.

I have heard about people who are massively in credit and have trouble getting their money back. With a previous supplier, I was in debit for some time, and thought that was a good thing. It was recently pointed out that to be in debit will mean a big bill to pay when switching, which could deter people from switching.

There is a best time to switch – if costs are increasing, wait until all the major suppliers have changed their prices. Also, there is a penalty for switching too soon before a tariff period ends.

Tim,

the entry of your USAGE in kWh (Kilowatt hours) is really important when making comparisons rather than the amount your currently pay.

Lots of people pay more (or less) than they should. Check a bill from about a year ago – look at the meter reads. Gas is a bit of a problem but this might help:

Check the meter read from one year ago. Check the meter read a few days ago.
Work out the difference between them.
Look at the most recent bill and see how the gas supplier has calculated the kilowatthours for gas compared to your meter usage.
For example, if the cubit metrers of gas used (m3) is, say, 37 and the kilowatthours is, say, 412 then 412 divided by 37 is 11.135135

So, if your meter shows 289 m3 used in a year then simply multiply this by 11.135135 to get 3218 kilowatthours.

I use about 1700 cubic meters (units) each year so the cost is 1100 x 11.135135 as near as damn. About 19,000 kWh per year for gas.

Use the same figures and you’ll not be massively different.

I am with OVO and apart from my happiness with their Green tariff they also give me 3% on the amount by which I am in credit.

If I had a spare £35K I would not receive any energy bills at all but 3% is still better than what the racketeering banks will give me.

I suspect there’s a littel bit of smallprint that limits the 3% to a credit balance of £”x”.

But like your sentiments (and math) that £1050 a year will nail most energy bills.

Its good energy companys geting beter prices. But how about Energy companys making it easier to be able to understand utility bills. It is not easy trying to work out which company is the cheapest?

John,
I agree, it’s not easy. But, with a little research and effort and a decent calculator it IS possible.
The key is understanding if you are a small, medium or large user of energy.
Then, check the supplier’s unit prices for gas and electric.
The daily standing charge can have a bit effect if you are a SMALL user of energy but has a lesser effect if you are a LARGE user of energy.

Bear in mind that we all use more energy in winter than summer so changing at a certain time of year will affect costs.

For example, a cost of, say, £0.28 per day for a gas standing charge will result in a bill of £0.28 times 365 = £102.20

If you use minimal gas (no gas central heatind and no gas cooker) this wioll be a large part of your gas bill overall.

The problem is, Simon, the more complex tariff the more incomprehensible is the bill. Trying to present it in baby language doesn’t always work either. Computerisation has enabled the fragmentation of charging elements which as well as its benefits certainly has its drawbacks. It is not in the interests of the energy companies to adopt uniform contracts and tariffs so they will persist in resisting it. Coupled with price variations per unit [fair competition], the charge- rates have become impenetrable for many customers.

John’s other point was that it is not easy trying to work out which company is the cheapest. You don’t need to do it the hard way – use Which?Switch with last year’s energy usage and your post code and you’ll get a full list of suppliers prices – cheapest first.