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Success! Ofgem refers energy market for full investigation

Coin on gas flame

In a win for our Fix the Big Six campaign, Ofgem today referred the energy market to the Competition & Markets Authority for a full market investigation. What changes do you want to see in the energy market?

Dermot Nolan, the new chief executive of Ofgem, has referred the energy market to the Competition & Markets Authority (CMA) for a full investigation.

Ofgem expects the CMA to focus on:

  • The relationship between the supply businesses and generation arms of the six largest suppliers.
  • Barriers to entry and expansion for suppliers.
  • The profitability of the Big Six.
  • Whether or not there’s sufficient competition between the large energy suppliers.
  • The trend of suppliers to consistently set higher prices for customers who haven’t switched.
  • Low consumer engagement that contributes to weak competitive pressure in the market.

We’re delighted with the decision – it’s a watershed moment for a broken market that has left millions struggling to cope with spiralling bills.

CMA must leave ‘no stone unturned’

The investigation must leave no stone unturned in establishing the truth behind energy prices. While it takes place, we want to see Ofgem continue its renewed, tougher approach to protecting customers. It was encouraging to see the regulator take strong action against Npower last week, where the supplier was told to sort its billing and complaints issues or risk a ban on all telesales.

In the meantime energy companies shouldn’t sit idly by and wait for the outcome of the inquiry. They need to make urgent changes now to do better by their customers.

We want to see radical reforms, as detailed in our Fix the Big Six campaign, to inject more competition into the market and help rebuild trust by giving people confidence that the price they’re paying is fair.

What do you think of Ofgem’s decision to refer the energy market for a full investigation? What do you think the investigation should cover, and what action do you want to see energy companies take now?

Comments
Member

Just over 2 weeks ago, Ofgem wrote to the Big Six energy suppliers to explain to their customers what impact falling wholesale prices will have on bills.

Is it too early to point out I’ve heard nothing from my supplier and I guess many others haven’t either. Which for me is sadly no surprise.

Will ofgem be following up on that letter or is referring them to the CMA just them passing the buck?

Member

This inquiry was proposed in March, but my concern is that it will take 18 months to report, and no doubt another 6-12 months before any proposed changes might happen. With all the existing background, why cannot the CMA get stuck in with a lot more urgency (I don’t suppose the General Election in 12 months is a factor?)
I would like to see transparency in the pricing that the energy companies charge. I want the following items to be shown priced separately on my bill:
– the actual raw energy cost – kWh prices – of gas and electricity shown,
– the distribution charge shown (through wires and pipelines, a charge proportional to usage),
– the policy and regulation costs imposed by the government (fixed costs, not dependent on energy consumption) such as support for low carbon technologies, support for vulnerable customers, improving customer energy efficiency; and consumption-dependent costs such as the carbon tax
– supplier costs – (fixed costs, not dependent on consumption) such as admin, meter reading, smart meter roll-out.
Tariffs should be shown as an energy unit cost – including all elements that are consumption-dependent – and a separate cost for items that are not dependent on your energy consumption. Behind these costs should be, for those interested in understanding their costs, the above breakdown.
Energy costs are not simple, and will become even less so when we get time-dependent unit costs, a feature that smart meters make possible. Making clear how charges are arrived at should allow better control and informed criticism of the suppliers.

Member

For me the top priority is to have simple unit pricing so that anyone capable of comparing the price of petrol or the price of groceries can see which energy company is offering the best deal. For this to work, we obviously need to get rid of standing charges. We don’t pay standing charges on petrol or on our groceries. The other reason to get rid of standing charges is to prevent low users subsidising those who use more.

Though the ‘big six’ have been responsible for much of the public distrust of energy companies, we obviously need to look at what the smaller companies are doing as well.

Member

wavechange, I want to pay for the energy I use at the same rate as anyone else on my tariff. So if I use twice as much gas and electricity in kWh as someone else, it is fair to pay twice as much for it. But in energy supply are some costs that do not depend upon your consumption – it costs no more to administer my account, supply and read my meter, as someone using half my consumption. So I do not expect to pay twice as much for it. I expect to pay the same as anyone else for the smart meter roll out, to support vulnerable users, and for supporting low carbon technologies.
So there is a cost based on consumption, and a fixed cost element. It is fair that the total price I pay should reflect the real costs involved. Subsidy has nothing to do with it. Many who use more energy do so not from choice but necessity – the elderly, the sick, large families, those at home all day, those in poorly insulated houses and so on. Many are likely to be in fuel poverty. They should not be penalised by being overcharged for the fixed-cost element, which is what would happen if you have a unit price only tariff.
The “simple tariff” argument, based on the assumption that the majority of us cannot do simple arithmetic, falls apart anyway when you do not have “simple” tariffs – if you have an economy 7 type tariff, if you need to compare dual fuels from different suppliers, and when smart meters introduce several time-of-day tariffs – you will have to compare not one unit cost with another, but several.

Member

Malcolm – We don’t pay a standing charge on petrol, as Which? reminded us when it first put the argument for simple unit pricing. If we priced goods in the way you want, we would be paying a separate distribution cost for a jar of coffee. Rather than unnecessarily complicating matters, it is best to include the fixed costs in the price. We can help those in fuel poverty etc. where there is a need, but this does not mean that prices have to be complicated for the rest of us. The other alternative, as has been discussed before, is to pay for the fixed costs through general taxation.

One cost we can do without is smart meters, simply because of the ridiculous cost of the roll-out. If anyone wants one they should pay for it.

Member

wavechange, “Rather than unnecessarily complicating matters”. First, it is not complicated. Second, charging people unfairly – making them contribute more towards “fixed” costs that do not depend upon how much energy you consume – is wrong. Such unfairness would probably form the subject of another Which? conversation. It is penalising many vulnerable people – I don’t think that is right.
The “dumbing down” argument – making it simple even if it is unfair and illogical – does not wash with me.
The petrol analogy is ill-founded. If you want to buy the cheapest fuel you are likely to have to drive a few miles to get it. This will cost you in fuel and wear and tear. To save 2p a litre – say £1 on a fill – you are likely to spend more than that in fuel in just getting to the cheaper station. Who calculates that extra cost and factors it in? You don’t just buy a jar of coffee, you fill a basket or trolley when you shop. Do you price-compare every single item to make sure you have the cheapest total shop? Of course not. So neither of these examples are simple in reality in getting the cheapest deal..
Energy consist of both consumption-dependent and fixed costs. It is fair we should pay that way. If there are people who can’t work out their best deal – as opposed to can’t be bothered – then concentrate on giving them help, not in distorting a system on the dubious basis that the UK is populated by people who lack numeracy.

Member

Malcolm – It was Which? that made the analogy with the price of petrol and I very much support what Which? has set out to achieve.

When we are in our dotage we might not be able to compare energy prices, which can vary a lot more than jars of coffee and litres of petrol.

Please let us consider those less fortunate than ourselves.

Member

wavechange, Which? is not always right and has not been particularly explicit in promoting this. Second, “considering those less fortunate than ourselves” is exactly what this is about; ensuring for all of us, including those struggling with their money, that you only pay for what you should. Vulnerable higher energy users should not pay more for their meter reading, bill administration, smart meter roll out, technology support than others more fortunate.