14 February 2014 / Home & Energy

Time to Fix the Big Six and the broken energy market

Comments 25

Our energy market is broken. We don’t know if the price we pay for our energy is fair, trust in energy companies is at a disastrously low level and bills are rising sharply every year. It’s about time we fixed things.

Energy companies received more than 5.5 million complaints in 2013. That’s more than 15,000 complaints every single day, on everything from bills to switching.

That’s why today we’re demanding six fixes for the energy market with our new Fix the Big Six campaign:

FIX NO.1. Increase competition
FIX NO.2. Transparent trading
FIX NO.3. People power
FIX NO.4. Cost control
FIX NO.5. Customer trust
FIX NO.6. Warmer homes

Ultimately, we think the Competition and Markets Authority needs to conduct a full scale competition inquiry to really get to the heart of the matter.

We don’t think the energy companies should be able to buy and sell energy to themselves, behind closed doors, without any of the light that a functioning market would shed on them. More energy should be traded on open, transparent markets where everyone can see what the actual prices are.

Low trust in energy companies

Aside from wholesale energy costs, more can be done to cut unnecessary costs on your bills that come from government levies. The £50 off energy bills announced following our ‘Cut them down, George’ campaign was a step in the right direction – but only that, a step. The government should look again at carbon taxes, the smart meter roll-out and more – value for money for customers must be the overriding concern.

We want to see a change in culture. Our satisfaction survey, published last month, shows that the Big Six aren’t delivering for their customers. Despite accounting for 98% of the market, none of them ranked above ninth place our survey.

Plus, just one in five trust their provider – that has to change. Concerns recently raised about charging for non-Direct Debit payments, and about companies holding on to hundreds of pounds of customers’ money, just add further weight to this argument. The companies should also be doing more to help you find a better deal with simpler pricing and swifter switching.

A better deal from the Big Six

Finally, we want to see the Government commit to an overhaul of the flagging Green Deal policy. A year after it launched there’s still little understanding of why consumer interest is so low – the Government must review why this is and set out recommendations to improve the product. For example, we want to see companies prevented from charging large fees if a customer wants to pay the balance of their Green Deal loan early.

We need your help to show that this market is broken and we want it fixed. The ongoing regulators’ examination of the energy market is an opportunity for radical action and real change for the benefit of you and me. Have you been dealt a poor hand by your energy company in the past? Tell us about it – and if you want a better deal in the future, sign our Fix the Big Six petition.

Comments

Debbie says:

14 February 2014

I work in Green Deal and I can assure you that consumer interest in Green Deal is not low, but the majority of enquiries unfortunately do not lead anywhere due to the complexity of the scheme.

Josh Green says:

14 February 2014

Hi Debbie

We have long been concerned about the complexity of the Green Deal so I’m not surprised that’s your experience. Ultimately it is a complicated financial product, and the actual process of getting Green Deal measures installed can be very time consuming. On the flip side however, because it could tie people in to a long term agreement, its important that appropriate consumer protections are in place to stop people from being mis-sold inappropriately costly measures, or measures that will not deliver the level of savings quoted.

malcolm r says:

14 February 2014

Josh, please produce some facts and numbers rather than an emotive introduction. Of course we all want lower bills, and of course we all want to be dealt with fairly. But we want information upon which a rational discussion can be based. We have, at the last count I believe, one of the lowest gas costs in Europe, and are in the middle for electricity. Please don’t join in the government’s populist approach but find out facts. Then we can see how best to put pressure on the suppliers to get the fairest deals. Incidentally, the smaller companies outside the “big six” often charge more for energy – are you letting them off the hook?

Josh Green says:

14 February 2014

Hi Malcolm

Thanks for your comment. We’re calling for a full competition inquiry into the functioning of the energy market in order that we can establish some of the facts that you refer to. So much trading in the energy market is done behind closed doors, facts can be hard to come by but we hope that will change.

We’re not letting any suppliers off the hook, but the Big Six control well over 90% of the market. That said, all energy companies have a role to play in improving this market for the consumer and rest assured we’re not giving the smaller suppliers a pass here.

J.P. says:

27 February 2014

One of the first steps should be to remove any exit fees as these are an easy way of stopping people swamping energy companies when a competitor is cheaper. So it negates much of the competition.

Another is to insist the pence per unit be displayed along with the average user stats which do not really help most people.

In stead of stopping the No Standing Charge tariffs the standing charge should be abolished. We are paying for the smart meters. Standing charges become significant to the low green user so reducing the incentive to lower consumption.

malcolm r says:

14 February 2014

To put some numbers into this conversation from one source – just for discussion.
A typical dual fuel energy bill of £1128 for 2015 is broken down into:
1. Supplier costs + commodity and production cost – gas and electricity – £669
2. Govt. energy policy and regulatory costs + energy transportation costs – £459.
So, on the basis of these figures, the costs under control of the energy company are 59% of the total. Not wholly true, of course, because they don’t have control over world energy prices, so their direct costs are 19% of the bill.

These costs can be broken down:
Supplier costs = operating cost £152 + smart meters £13 + profit £53
Commodity cost = electricity £158 + gas £293
Govt regulatory etc = Tax £54 + carbon tax £42 + supporting low carbon technologies £47 + improving customer energy efficiency £38
Energy transportation = use of distribution network £96 + use of national grid £25 + use of gas network £161 + gas storage £5 + balancing and other £8.

It is not a simple topic, and there are many components that are controlled by organisations other than the energy supplier. It all needs careful examination, including the commodity costs and where profits lie there.

So all I am asking is that rather than whipping up emotions we at least examine what facts there are, and probe into those that are not so easy to find.

Beryl says:

14 February 2014

Surely the whole purpose behind the campaign Malcolm is to determine these facts. They can only be obtained through transparency which has eluded consumers so far. The only way to do this is through people power. We have to start somewhere. Making comparisons with other countries is counter productive unless you are aware of the whole picture. WE ARE BRITISH. If other countries are content to roll over and play dead that is their prerogative.
The key issue here is determining the energy costs between generation and supply, only then will public trust in the Energy Co’s be restored resulting in a better deal for everyone and competition re established in a broken market.

malcolm r says:

14 February 2014

Beryl, you are right – so I have provided what may be facts and I hope others will add to them or contradict them. I wish that Which? had provided some numbers to show just how costs arise in the energy market. The point I made about energy costs within Europe is simply factual – that many others are paying more than us. We have to separate inevitable costs from the add-ons. Raw energy – gas and electricity – has a cost and I’d like to know what it is bought for by the energy companies. I’d also like to know just how much they make when they produce their own electricity. Who will tell us? The key issue is determining ALL the costs – from energy source to home – so we can see where the scope is for saving.

Incidentally, we spend far more on: food from supermarkets – should we be tackling them? On housing – who do we tackle on fair rents? On commuting – are we looking at transparency there?

Josh Green says:

14 February 2014

Hi Malcolm & Beryl

The facts that you set out above were also set out in the report we published into the wholesale energy market in July last year (although not using precisely the same categories or indeed identical figures). You are quite right, it is an extremely complex area and the more digging that is done to establish what sits behind these numbers, the better – that’s why we want a full competition inquiry.

malcolm r says:

14 February 2014

As I understood it, Ofgem were to produce an interim report at the end of March on the retail energy market. Is this still the case? If so, would it not be wise to see what they have to say? They have not performed well in the past, so I’m not holding my breath, but if they prove lacking this time then that surely is the time to put the maximum pressure on government to both decide Ofgem’s future, and to urgently do a proper investigation of the energy industry. Or, you never know, Ofgem may finally have got the message that they should be looking after consumers’ (domestic and commercial) interests and come up with some useful measures. Do you have any inside information on this, Josh?

malcolm r says:

14 February 2014

This was the interim report I had remembered –
“The Government recently announced that Ofgem would work with the Office of Fair Trading (OFT) / Competition and Markets Authority (CMA) as appropriate, to carry out a market assessment in order to monitor the behaviour of market participants and ensure the market is working for residential and small business consumers and that all suppliers can compete fairly.” and a first assessment is due by end March.
The link is https://www.ofgem.gov.uk/publications-and-updates/letter-ofgem-oft-and-cma-secretary-state-competition-energy-markets

Josh Green says:

17 February 2014

Apologies, a bit late to this. No inside information I’m afraid Malcolm! You’re right to draw attention to it though, this is a key moment in the debate around the energy market. Ofgem/OfT/CMA are examining this through the process outlined at the link you posted above. Crucially, there are a number of different potential outcomes of the market assessment, one of which is a referral to a full competition inquiry. This is what we’re pushing for at the moment.

malcolm r says:

17 February 2014

Thanks Josh. As the first report is due to be issued at the end of March i think it would be sensible to see what it proposes with timescales; we can then analyse it critically and see whether it matches what consumers need. Alternatively it might spell the end of Ofgem as we know it – they are already under very close scrutiny.

wavechange says:

14 February 2014

For a start, I would like to see Which? revive its campaign for fixed unit prices for energy, and get rid of standing charges that mean that those who use less energy subsidise those who use more.

That would allow everyone to compare prices very easily without resorting to price comparison websites or other means of working out which company offers the best deal.

malcolm r says:

14 February 2014

The figures above show that some costs associated with the supply of energy are there however much, or little, you consume. Simply being connected to the grid with the option to extract energy from it, as well as administrative costs that need funding even if you consume no energy. The fixed cost element should, however, be the minium that recovers agreed fixed charges. Elements that are consumption-related should be part of the unit cost. Certain costs should be tax-payer funded, not by the energy user. Sort these out. Then we’ll get tariffs that are fair to all (well, there will always be exceptions).

wavechange says:

14 February 2014

It is very easy to compare the cost of petrol and the price per litre includes all the additional costs.

I would not object to the costs of maintaining the infrastructure for gas and electricity supply were met by the taxpayer or included in Council Tax. That would take care of the problem of unoccupied homes with connected supplies but using very little or no fuel.

malcolm r says:

14 February 2014

Easy to compare petrol – except of course how much it costs you to drive to your chosen petrol station to get the best price – whereas gas and electricity come to you! If you have an unoccupied home you can switch to a unit-charge-only supplier. The reduction in switching time will help. Otherwise unless you are a very low user, a standing charge deal offers better value. We all want the best overall deal, not something oversimplified for no good reason. However, this discussion has been aired many times before and has been concluded by Ofgem’s retail Market Review. We need to move on.

wavechange says:

14 February 2014

Here was me thinking that we might be coming to some sort of agreement at long last, Malcolm. 🙁

I had though you were suggesting that the fixed costs could be met by the taxpayer, which would enable us to have fixed unit prices that everyone can compare easily. I’m not thinking about myself, but those who find it difficult to make price comparisons under the present regime.

With petrol and diesel, the cheapest and easiest solution can be to fill up when passing a filling station that offers a reasonable price.

malcolm r says:

14 February 2014

This is about making it as fair as possible. I doubt either of us is totally right, it is not that sort of a problem. It will always be a compromise. Moving a lot of cost onto the taxpayer has its downsides as well – there are plenty of well off people who pay little tax, and plenty of lower income people – including pensioners – for whom a tax hike would be a problem. Council tax is even less equitable.
Looking at a spread of 9 suppliers, total annual standing charges for dual fuel vary from £0, £52, £88, 4 between £126 and £153, £204, £250. So there is plenty of choice – you’d need to look at the unit costs to decide your best option. The low standing charges may be appropriate for low users and the higher ones for the higher users. Remember that It takes little time once a year to input your annual energy consumption into Which Switch and all the sums are done for you. It’s choice I want – I believe that is good for consumers – not an inflexible mantra.

wavechange says:

14 February 2014

Malcolm – I can cope with price comparison and you seem to enjoy doing this. What about the many people who are not mentally fit to do so? Please let us consider those who are less fortunate than ourselves.

If paying fixed costs of energy supply via taxation is not a fair way, then it needs to be fixed unit prices and no standing charges.

John Ward says:

15 February 2014

I couldn’t go along with the fixed costs of domestic energy supply being met from taxation since it would be inequitable for those without mains gas and those who generate their own electricity. I would be in favour of a regionally-standardised “meter charge” for each meter that would cover the running costs/maintenance of the supply system [bearing in mind that the capital costs of new supplies are paid for by the developers or property owners]. I’m not sure that even the lowest user should entirely escape the cost of being connected so that as and when they do flick a switch their lights come on or their hob-ring burns. The “meter charge” could be determined by Ofgem.

The provision and upgrading of electricity generating capacity and high voltage transmission are funded by the generators which are repaid through the wholesale price. As has already been said, it is vital that this be isolated and exposed where inter-company trading occurs. Similar arrangements can be made for gas extraction, storage and trunk distribution.

PeterM says:

23 February 2014

While I can see there is a difference in “transportation costs” I really wonder whether that difference (or high charges by the original incumbent from 20 years ago) make the prices as they are – years ago when we were first able to switch company, the “original” provider was undercut by others trying to increase their market share.

Over time, I suspect the pricing has not been based on true “transport costs” but all the firms jiggling their prices in a particular region to remain “competitive” on gas or electricity (but possibly not both). Looking at prices around 5 years ago, there were remarkable differences between high and low prices (at that time I compared British Gas, and switched to another provider).

Now, just looking at the Co-Op prices, I see that North Wales, Cheshire and Merseyside gets charged about 2.5p more per kWH than the cheapest, and over 1p more than the rest of the region they call the North West. That’s over 17% higher (and on Economy Seven, rises to around 20% higher… but then check the night time rates and the prices on Economy Seven are much closer together, apart from N Scotland, so how can the ‘daytime’ prices be so significantly different?)

I had looked at one of the EDF plans a while back, which had lower electricity rates, but I think I will now have to consider switching to Economy Seven and work permanent nights, since my computers consume a fair amount of electricity. Add to that the cost of heating something in an electric oven (fitted before I moved in) and an electric kettle and that 17+% hits me each time I switch something on!

I can live with 3W and 4W LED lamps very happily (compared with the 30-50W halogens, and 40-100W ‘old’ tungsten filament bulbs). I often listen to “Up All Night” on Radio 5, so I will switch from my current business (which often means working to daytime “office hours”) to solely working on the internet, and make contact via e-mail only, so daytimes I will sleep…

Beryl says:

8 March 2014

The following are extracts from a meeting held on 3rd March at a Select Committee Meeting between MP’s The DECC Infrastructure Group and HM Treasury on the impact on consumer utility bills within the next decade and what is affordable. Some confusion as to who decides on affordability. Probable £38 increases on consumer bills to pay for future infrastructure. Lower income families hit more with15% of income spent on energy and water amounting to an 11% fall in income. Questions over intermittent power generation – are the Regulators fit for purpose? Energy companies not delivered for consumers over the last decade in prices. UK comparable to Estonia with regard to affordability according to Patricia Hodge. Worst of all money gained on profits which should have been used for infrastructure has gone to investors! Consumers will be expected to foot the bill. No Government Body taking responsibility for price hikes.

Jenny says:

23 June 2014

A belated addition to this topic:
As a result of the government’s meddling in the energy market I will now be paying more for my electricity. I was on Scottish Power’s ‘Pay in Advance’ tariff, which gave me a 5% discount on its standard tariff if I paid for a year’s energy in advance. Considering the rates available on savings accounts, I thought this was a good deal. But because they have been told to reduce the number of tariffs, they are scrapping this one.
Complexity is not necessarily related to the number of tariffs on offer. There was nothing complex about this tariff, but it has gone anyway.
Prompted by this, I looked around at what other suppliers were offering. One problem is that they all want to input your usage and “get a quote”. This is no use to me, because I had a new boiler fitted last year. The old one had insufficient capacity to heat the water as well as the house, so I used the immersion heater overnight on Economy 7. The new boiler heats the water too so my previous usage is irrelevant. On most suppliers’ websites you can find the actual prices if you try, but I couldn’t find them on Ovo’s site. Another gripe is that usually, when you ask a tradesman for ” a quote”, that’s what you will pay; what these energy companies are offering is an estimate and they should say so.

malcolm r says:

23 June 2014

Jenny, go to ovoenergy.com (Home page|), bottom of page is “see all your options”, click on this and at bottom of page it takes you to is “see tariffs and unit charges….” Click on this for a table of prices for different plans in different regions.
Re “a quote”, the quote they give you will be for unit rates and any standing charge for the plan chosen. They clearly cannot quote for your usage – in any period your usage can only be an estimate, particularly depending on the weather.
If you think you are likely to be an “average medium user” then you could compare prices using 3200 kWh electricity and 13500 kWh gas a year.

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