Why the CMA must deliver a fairer energy market

As you say, a ‘toothless’ entity, and while one hopes they are not taking ‘backhanders’ from the energy companies, they do appear primarily to be there only for the Government to be able to say “Oh look, you (the consumer) can’t be getting a bad deal because we have put into place the CMA to keep a check on those naughty energy companies” – and, as we all know, if the Government say it’s okay then it must surely be okay… …right?

Switching can be done by telephone. You don’t need a computer. I agree there are people who are unable to deal with these sorts of matters; they need help. Ideally family members should provide this or, failing that, organisations such as CAB. If, as is likely, the right sort of help is scarce then we should do something to rectify that.

You say ‘if you talk to scientists, they will tell you that nuclear is the only way we can sustain our energy output” – If you talk to pro-nuclear scientists maybe…. There are plenty of other scientists who will tell you different. We just passed a tipping point of 2 degrees of warming yesterday, the point beyond which we’re supposed to avoid in order to miss the worst effects climate change. After exactly 10 yrs of Pro-nuclear UK Energy Policy, there is not one MW/hr of ‘new nuclear’ on the grid. And not likely to be within the next ten years.

If we had followed the path of Germany’s ‘Energiewende’ over the last 10yrs instead of the nuclear path that our successive governments have persued, we could be well on the way to self-sufficency in energy from clean safe renewables. We do not need to increase, or even keep constant, the amount of energy we currently use. We are prolifigately wasteful energy consumers here and the cheapest electricity is the electricity you don’t produce in the first place.

Germany is an amazing example of what can be done to de-carbonise the grid. They still have a long way to go, but at least they have begun in earnest, and there have been massive political mobilisations of the people there against the inappropriate disposal of nuclear waste and there is a big movement against coal and in particular Lignite, people want an end to destructive extraction.

It is less than a week until the 5th anniversary of the beginning of the Fuksuhima crisis, in Japan the destroyed reactors continue to belch 400 tonnes of contaminated groundwater per day. It is having an impact on all ocean-going predators such as Pacific Tuna such as blue fin which are alll showing up with Cs134 (Fukushima fingerprint). http://topinfopost.com/2013/10/10/fukushima-is-here-all-bluefin-tuna-caught-in-california-are-radioactive.

At the moment the levels are relatively low, however the coriums from these accidents will continue to pose a threat for over a 100,000 years, if those leaks aren’t plugged in that time then the amounts in the marine life can be expected to increase.

Watch these two films from the ecological options network:
https://www.youtube.com/watch?v=iTPR5KIFdg8 Ken Buessler (Woodholes Oceanographic Institute)
https://www.youtube.com/watch?v=5xnj5QYBzLs Timothy Mousseau (, Department of Biological Sciences, University of South Carolina.) IAEA are ignoring all of the data coming out of chernobyl that suggest what is really going on. The current health models used to ‘regulate’ the industry are highly contested by independent scientists – see the European committee on radiation risk (ECRR) http://bit.ly/21iU4il (i had to get a cached copy of their website not sure what’s happened to it).

Furthermore if The governments hair-brained scheme for new nucelar continues to be persued then and if they were able to build the (unconstructable) Hinkley C ,it would be the single most expensive object in the world, hardly a recipe for a affordable energy bills. Their plans for Hinkley C have already doubled the maarket price of energy, that means people like myself who have to choose between heating and eating soon enough wont be able to afford energy at all! This is not acceptable.

If you are interested in democratic, and fair energy prices then take a close look at what Germany is doing with the Energiewende, 50% of installed capacity there comes from community owned energy and they are way on track for decarbonisation, and an 80% reduction in Carbon emmissions by 2050. Meanwhile our government has used the Electricity Market Reform Act to attack the community owned renewables model.

Incidentally the chances of another Chernobyl by 2050 are 50% according to MIT – is that a risk really worth taking? https://www.technologyreview.com/s/536886/the-chances-of-another-chernobyl-before-2050-50-say-safety-specialists/

Nuclear Energy has an eye-watering price tag both economically and environmentally. And in my opinion it really isn’t worth it it’s not clean its not green and its not neccessary.

That’s an interesting suggestion, Peter. Traditionally, those with pre-pay meters pay more for their energy, even though they are paying in advance.

Or why not just go with Utilita’s smart metered prepay service, where there are no electric or gas keys to be lost and and you can top up both in corner shops and on-line?

As a further plus, there are no standing charges on their tariffs. (Instead they apply lower unit prices, after a certain number of units have been used.)

I agree with Peter Young, many people are obliged to use key and card meters not only paying in advance for their energy but also at premium rates.

There is an energy company that charge the same per kw no matter how you pay, key card included. Look at Ebico Energy.

Have you worked out what your annual bill is with Ebico? If I were a low dual fuel user, it would cost me around 42% more. Only if I used around a quarter of the energy of a low user would I pay any less.

Thank you Cate for your comment, it’s very satisfying to know I’m not alone in my opinions. I’m very much into my ‘twilight years’ now, but I’m justifiably concerned that the future holds very difficult times ahead for the upcoming younger generation, and those most vulnerable in our society. How very sad that the many sacrifices we made to create this great nation within our lifetime, is not worth a penny to the government and their puppet masters, insatiable and profit hungry corporations and banks !!

I am glad you have put the energy costs in perspective Derek. If people examined all the different calls on their incomes it might give them a surprise – satellite TV, gym membership, holidays, clubs/societies/magazines, etc. I can appreciate that people want to keep down the cost of essentials to boost their disposable income so they can afford more optional pleasures but many of those do not give the numerous opportunities to choose the most favourable deal that collectively the energy suppliers do.

I agree that there are plenty of ways to economise, and I would add alcohol and smoking to your list. Unfortunately there are some elderly and disabled people on a very restricted income. Most of this goes on rent, council tax and food, leaving little to heat their homes. I know people who are simply not up to switching, and have rejected my offer to help. What is trivial to you or me is difficult for some.

wavechange, citing those genuinely in poverty is quite appropriate. These people need extra help, maybe advice, maybe financial, from the appropriate “authorities”. This does not mean that the rest of the population, who are more capable of organising their affairs should not be permitted to do so. Targeted help for the vulnerable is what we should perhaps be more focused on.

I agree with you Wavechange and I wish society would make it easier to ensure that poor and needy people get all the support there is from the available benefits and reliefs, including Council tax reduction, single person Council tax discount, pension credit, warm front, line rental saver, better energy tariffs, and so on. I don’t see much evidence of the government or the social services promoting or advertising these schemes or even directly mailing them to people who are on their lists [or perhaps to their sons and daughters whose details they usually have]. I know you can take a horse to water but cannot make it drink, but many vulnerable people are not even being taken to the water in the first place.

A number of well-intentioned commenters have suggested that there should be lower energy charges for certain categories but I wouldn’t trust the suppliers to do it properly or to hold and use sensitive personal information securely. I can immediately foresee some opportunities for abuse of such a scheme and by raising the cost of energy for other consumers it would have a ratchet effect on the next tier of disadvantaged people. It’s far better that people are enabled through the pensions and benefit systems to live a decent and dignified life but “tracker pensions”, for example, that would go down if prices fell, would not be popular I feel.

John – Many don’t claim benefits for which they are entitled to, for various reasons. No doubt there is some overlap with why they are not switching to cheaper tariffs. I want to get rid of standing charges so that low energy users don’t subsidise higher users, since many of the high users have no shortage of money. I’m well aware that there are high users that suffer hardship but I understand that the number is considerably smaller than those who depend on state pensions and struggle with energy bills. I agree with you that it’s not the role of energy companies to sell energy at different prices to different customers but expecting people to keep changing suppliers to ensure a reasonable price is not right.

It seems unlikely that state pensions will rise significantly, so the best we can hope to achieve is to push more people into pension schemes that will keep them comfortable in retirement and save the benefits for those who have through illness or disability been unable to save for a pension.

Neither the logic nor the figures support this. As I have said elsewhere, compare Ebico (no standing charge) with a supplier having £2 a week standing charge, and you’d have to be well below (nearly a quarter) of Ofgems “low user” to benefit. Standing charges should include only those costs that are independent of consumption so that every consumers is fairly charged.

My previous energy supplier and my present one charged a different standing charge. I don’t see much logic there.

Thankfully the cost of a loaf of bread does not depend on how many loaves we have bought in the past month.

Maybe we should put it to the vote. I don’t think many would support retention of standing charges.

People need to know the facts to reach an opinion. Maybe Which? will do that? As I have repeatedly said the standing charge should only contain agreed costs that are independent of energy consumption. I believe these costs are fairly low.

Why should someone pay twice as much to have their meter read as someone who uses less energy – it costs no more? The small amount it costs to prepare and process my account and payment will be the same as anyone else’s – why should a high user pay more for this? It will cost just as much for my smart meter as someone else’s – should I pay more? Energy usage is related to need, not ability to pay in many cases; I don’t choose to use the amount of energy I do – I need to.

Subsidising anyone should be on the basis of need. If poor high users have to pay more then that is no more fair than wealthy low users paying even less. We need a fair system, thought out to be fair to all consumers, not one driven by some so-called simple tariff that is indiscriminate in who it benefits.

wc – “Maybe we should put it to the vote. I don’t think many would support retention of standing charges.”

We can already vote with our feet (or wallets?) and move to suppliers who either do not apply standing charges or, next best thing, those who charge relatively low ones. (I did this recently…)

Ebico is also an interesting useful example because it is a “not-for-profit” company. So if it is charging “above average” prices, that can’t be on account of any “fat cat” shareholders milking customers to ensure the payment of generous dividends.

Derek, so I wonder who the higher charges benefit? I’m always wary of commercial organisations that claim to be “not for profit”.

Malcolm – If standing charges are there to pay for fixed costs then those in rural areas should pay considerably more than urban consumers to pay for the costs of installing the pipes and cables. Anything else would not be fair, would it? 🙂

It’s time to get rid of standing charges, which bear no relating to the fixed costs of supplying you, me or any other individual with energy. Standing charges simply ensure that high users are subsidised by low users.

Derek – I did intend to look at Ebico when I switched supplier before Christmas. At least with Ovo I am no longer a customer of one of the larger companies.

In most cases the pipes and cables are already in place. You will pay more for a connection depending upon your distance from the nearest main, but this is a separate payment, nothing to do with the standing charge. Use of the pipes and wires is also a separate payment that is consumption dependent paid to the gas and electricity distributors; again nothing to do with a standing charge.

There appear to be misconceptions about standing charges; they need to be explained. Do you think I should pay twice the amount to have my meter readings take, my bill prepared and my payment processed, and such things just because I have to use more energy than someone else? That would be a consequence of this ill-founded suggestion that all charges should be in the units. There may be low users who wish to benefit as much as possible from distorted charging; I don’t know. But I want charging that is fair to as many as is possible, and seen to be fair. I am already paying more vat and contribution towards the profits if I anm a higher user. Should I have to pay more to subsidise the vulnerable when I may not be very well off myself, and still having to pay more for my energy bill?

If you don’t like standing charges then choose a supplier that offers unit-only tariffs. That is the choice that having multiple suppliers gives you. I’ll choose the tariff that best suits me.

Even if we ignore the costs of installing the pipes and cables, it will still cost more to maintain supplies to rural users. If, as you claim, the standing charge is supposed to reflect fixed costs, then rural users should pay more. Get rid of meaningless standing charges and make pricing easier, and put an end to low users subsidising the high users.

Why does it cost more to maintain supplies to rural users? Standing charges are not “meaningless”. Rhetoric will not contribute to a sensible solution. If we examine those costs not dependent upon consumption then we can discuss how they should best be recovered. At the last count there were 16 separate government imposed charges for example, all taxable. Your energy bill contains far more than just an energy cost; that is only about 39 to 42%. Transmission charges, also consumption dependent, are around 27%. That leaves around 31% of other costs. I would like the CMA and Ofgem to examine these and advise which should be dependent upon consumption (perhaps supporting low carbon technologies for example) and which should be independent of how much energy you use (perhaps maintaining the security of your supply for example – we all have a similar dependence upon that). But a rational, not an emotive, debate is needed to end up with a fair system, not some populist (to some) scheme that does not reflect a fair charging regime.

Perhaps we should hope that Which?, Ofgem or the CMA will help provide a comprehensive and rational summary of the situation and recommend a fair and just way forward.

However, I should point out that in the scheme of things I do not see the £2 or less per week that some standing charges represent is the real issue; what matters is your total bill. There are around 30 providers offering different tariff structures. Pick the one that suits you and let others pick the ones that suit them. No one is forced to pay a standing charge.

Malcolm – I want to make it quite clear that my input is not related to my personal situation. As I have said many times, I don’t want high energy users being subsidised by those who cannot afford to heat their homes adequately. I don’t know what most people pay in standing charges but mine are currently £200 for gas and electricity. If I’m not mistaken, this corresponds to the full Winter Fuel Payment for a single person. I have previously suggested that general taxation could fund the cost of providing gas, electricity and water supplies to homes, so that bills cover only usage.

A considerable amount of money is spent on maintaining our utilities and it seems a reasonable assumption that it costs more to do this for properties in rural areas. I’m prepared to be proved wrong.

Anyone choosing a zero standing charge tariff pays a higher unit charge for their energy, so low users still subsidise high users.

As you said before, people need facts to reach an opinion. Maybe the number of people who cannot afford to heat their homes is the most important figure.

“Maybe the number of people who cannot afford to heat their homes is the most important figure.”

This is a general, not an energy problem. If people are poor they cannot afford decent accommodation, cannot afford decent or adequate food, clothing, and the other necessities in life, including energy and water. Those who are genuinely needy in this respect need help from the State. Tinkering with the details of energy bills will not be a great help. A proportion of these people will require much more energy than others, for example because of poorly insulated accommodation, health needs, round the clock heating needs, and they may only have expensive electricity for heating. We should not push their needs to one side as if, just because they are high users, it is their own fault and they must have the means to pay. They are entitled to the same consideration as others, and setting out to increase their costs on some false premise of cross subsidy seems rather heartless.

As I’ve said before, the number of people who are higher energy users is smaller than the number who have very restricted income and cannot afford to heat their homes. It makes more sense for the high users to apply for benefits. Many of them are not short of money and would not qualify.

It matters not whether the number is smaller or larger. They are all individuals who may need support. Many people who are on the financial cusp do not qualify for benefit support. but introducing an unfair system on the basis they should then claim benefit to compensate is wrong and bad for the proper allocation of scarce benefit money. You cannot justify an unfair and illogical charging system by then doling out government subsidies.

Perhaps we should now leave this – we can reference several other convos where this has been covered.

Higher charges might just reflect the costs of running either a less efficient company or one with a smaller customer base and thus less economy of scale.

I believe that Ofgem has ducked the standing charge issue. I hope the CMA will go into it in some detail. There needs to be a proper examination of what should and should not be covered by the standing charge – for example some of the government imposts should be in a standing charge and others possibly not, but this needs to be analysed and the reasons for and against each decision clearly set out. Likewise with administration, billing, customer service, transmission, distribution, metering, system maintenance, compliance etc. If regulation is to mean anything, and if its primary purpose is to secure effective competition, then there is a need for energy suppliers to be in a form of straitjacket so that fair comparisons can be made. Because the product, gas or electricity, is identical regardless of the supplier, there needs to be consistency over where particular other costs are allocated and Ofgem should be taking the lead on this. I am not against standing charges on principle so long as they are fair and transparent and based on standardised components. People who keep a second property for occasional use mainly in the summer time probably choose a no-standing-charge tariff but that possibly means that they are not making a fair contribution to the network maintenance costs which throws a larger burden onto other consumers. The different arguments swing both ways but I think it should be possible to arrive at an equitable and acceptable basis for recovering those costs that are not related to energy consumption volumes. An immediate target should be to reduce them substantially through efficiency improvements and expose them so that they can be examined properly; it is the obscure and opaque tariff structures that have allowed these costs to rise almost unchallenged to such excessive proportions of the total energy bills. The appropriateness of transferring some of the government-imposed costs to general taxation should also be examined thoroughly while considering whether there would be any inequity in the consequence that people without a mains gas service or who generate their own electricity might face higher taxation.

John – You mention the problem of second home owners, and they can be low consumers who should be contributing more. I don’t see that this is an insuperable problem and am well aware that buyers of two or more properties are going to contribute more through stamp duty.

I wasn’t thinking of property investors here; just those who have a holiday home or weekend cottage and sign up to a tariff with no standing charges. They enjoy the benefit of a permanent network connection, have their meters read and receive periodic bills, and have access to their supplier’s customer services. They might pay a bit more in unit prices when they do use electricity and gas but they are being carried by the majority of customers.

The additional stamp duty to be paid in the future by the buyers of second homes will not make any contribution to the costs of supplying energy.

I appreciate that the additional stamp duty will not contribute to the costs of energy supply, but it illustrates the possibility that second home owners could be treated differently from those with a single property.

I sometimes wonder how many second homes are declared as such to the local authorities in whose areas they are situated. In Norfolk second homes mostly attract no Council tax discount or 5% at best because the local councils don’t wish to encourage them and also want to extract full revenue from them to subsidise local services; it is therefore best not to declare them as second homes but claim the 25% mandatory single person discount. Paperless billing and e-mail have made this much more feasible. Energy companies need never know which properties are in that category.

I know a couple who lived together but he was the owner of a substantial flat in Lytham and she had the main home near Halifax. I don’t know if they went as far as to claim single-person discounts on their Council Tax. Thankfully they are now married and living near Halifax.

On reflection, it would be difficult for energy companies to know about second home ownership. If we scrap standing charges, the costs of providing and maintaining cables and pipes could be funded from taxation and the costs of account management and meter reading included in the unit price for energy.

So when my account costs no more or less than another’s to service, when my meter costs no more or less than another’s to read, I am expected to pay much more for a “fixed” cost than someone else, whether I have the means or not, simply because I am unfortunate enough to need to use more energy (I’m already contributing more in taxes and more to the energy company)? A peculiar way of being fair.

So you want high users to carry on being subsidised by low users. At least you can afford to heat your home adequately, which is more than many can.

This seems to distort what I say. I do not want anyone subsidised indiscriminately by some illogical charging system – my opinion. I think I have been clear about what I believe is fair, with what I believe to be relevant supporting information. However it is for others to decide their view based on facts not emotive arguments.

John, i have had correspondence with Ofgem over their attitude to standing charges. They have none. There view is that the energy companies are able to recover the costs – energy, transmission, admin, govt. regulatory charges – in whatever way they like by constructing a maximum of 4 basic tariffs. A standing charge is required but this can be zero (a simple way of dealing with this).

This approach allows for a wide variety of tariffs from unit only, low standing charge, to higher standing charge plus lower units. Consumers can them pick the supplier and tariff that best suits their circumstances. Choice and free competition is good in my view. The difficulty with Ofgem setting rules for the standing standing charge is to decide which elements are independent of consumption, which are directly dependent, and those awkward ones that fall in between.

Clearly the energy you use is directly dependent, the use of the wires and pipes should be based on consumption. Meter reading, admin, preparing your account, smart meters, providing a secure connection in my view fall into the independent category. But what do you do with carbon tax, supporting renewables, improving customer energy efficiency, supporting vulnerable customers, green deal, warm home discount, energy efficiency advice provision? Should those who use more, irrespective of their financial circumstances, pay proportionately more?

There is justification to expect all consumers to pay towards certain costs. Are we better leaving the suppliers the freedom to deal with this, as now, where we all have a range of choices? Should we, on some sort of “principle”, abolish this on the basis that some consumers could pay less (whether wealthy or poor) and some would pay more (whether wealthy or poor) in what I regard as a wholly distorted and indiscrimate way? Or do we ask Ofgem or CMA to decide which costs fall into which category and make the energy suppliers charge accordingly? Simple is not simple.

Thank you Malcolm. Ofgem might seek to justify their abstinence on the issue of the make-up of standing charges but I am not satisfied. I would prefer to use the most efficient company with the lowest non-fuel charges; under Ofgem’s dispensation they can post their costs where they like and it becomes opaque. I realise this is difficult stuff, and potentially controversial – which is why I should like the CMA to have a crack at it since Ofgem is not exactly disinterested.

With regard to the other elements [carbon tax, supporting renewables, improving customer energy efficiency, supporting vulnerable customers, green deal, warm home discount, energy efficiency advice provision] they seem to me to be appropriate for transfer to general taxation since they are nation-wide policies for the whole nation to benefit from and for the whole nation to contribute to – not just those who are using gas and electricity, and certainly not on a pro rata basis according to consumption. If such were done it would not surprise me if the Chancellor then raised the VAT on energy to 6 or 7 per cent [but at least it would eliminate the tax-on-tax situation that currently prevails].

I agree John, on balance. The simpler the make up of our energy bills are, the better. And I would like the costs to be categorised to they are related consumption or not. Ofgem could do that.

The “policy and regulatory” charges in 2015 were estimated to be £159 on an £1100 bill. 14.4%. By 2020 they are estimated to rise to 23%. So if they were “removed” and substituted by a rise in vat on your bill, by my calculations vat would become up to 28%, not just a 1 or 2% increase. They would also have a significant impact upon general taxation if all these costs were transferred away from the energy suppliers. So there may be a case of charging them where they are incurred? Or looking at whether these charges are justified in the first place and some could be reduced or eliminated.

When I said “transfer to general taxation” I meant included in the appropriate departmental budgets [DECC mostly in these cases] so that they would enjoy the kind of scrutiny you referred to in your final sentence and could be ranked alongside the other claims on the national expenditure. The funding can then be raised through the usual mechanisms of direct taxes, VAT, excise duties, and all the other means by which the Exchequer gets it revenue – not forgetting fair corporation tax on all companies that do business in the UK. I certainly didn’t mean that the ‘policy and regulatory’ charges should be commuted into VAT and dumped back on the energy bill! Regulatory charges should be borne by the energy suppliers and recharged to customers through their tariffs.

Given that taxation achieves a tolerable way of balancing needs and wealth, it is conceivable that doing this would render the energy bill so much more acceptable that the issue of the standing charge could be laid to rest.

If Ofgem has ducked the standing charges issue, then on the question of the charges for national policies then the government has well and truly funked it.

John, I don’t think Ofgem has ducked the standing charge issue, it just sees it as down to the energy suppliers to construct their tariffs in accordance with the general rules given by Ofgem.

I agree about the tax issue. It is interesting to watch parliamentary standard committees putting ministers and their departments, as well as others, through the mill. Although they are used for points scoring by some others do look in depth. A pity these do not get reported much in the media. BBC Parliament channel can be quite entertaining.

I just think the “general rules” given by Ofgem are a bit slack.

Derek,£37 a month? I bet you are not a pre-payment customer as I pay more than that for my electricity alone and that is the cheaper of my two energy bills. As a pre-payment customer I feel held hostage by energy conpanies,not benefiting from cheaper tariffs and dual fuel discounts. Also,if I want to return to normal meters I have to go through a credit check which annoys me greatly as I went on pre-payment voluntarily to help me manage my money following the sudden death of my husband,the main wage earner. By the way which company gives you your energy for just £ 37 per month as a matter of interest as I am going to give them a call!

Sue, I pay by direct debit. According to Which?, the Npower tariff I’m on would cost an average household about £68/month for gas and electricity.

Unfortunately, pre-payment tariffs tend to cost a lot more. For example, the Which survey indicates a bill of about £92/month in their average household were Utilita customers.

While there is competition to attract customers it may be worth having a careful look around to see what’s on offer. Some firms (e.g. Ebico) even claim they may be able to help some people move even when they have debts on their meters. A few years ago, Ebico didn’t seem to want PAYG customers at all though.

It would be difficult for people who live in flats, or who don’t have a suitable south-facing roof, or who don’t own the property, to participate in the benefits of your suggestion Pamela. Now if all the energy harnessed by state-subsidised micro-generation schemes were pooled without payment to the panel and turbine owners and fed into the grid it could be made more equitable, but who would surrender their roof to an array of panels without some return? There would still need to be power stations, gas supplies, and energy distributors/retailers, so getting rid of the energy companies would not be so straightforward as it might at first appear.