Success! Ofgem refers energy market for full investigation

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.

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.

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.

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.

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.

I am going to continue to support Which? on this issue, Malcolm.

Complicated energy prices are there to support shareholders and those in the industry. We can and should support the vulnerable. Your approach has low users supporting high users, irrespective of whether they are vulnerable or just profligate.

wavechange, I am not trying to change your mind on this – we have different points of view and that is what conversations are about. I am, however, concerned that this sort of conversation should explore issues properly, and not just focus on, for example, an emotive argument.
I have put forward the argument that there are fixed costs, and consumption-related costs. It is up to others to decide whether it is fair that we should all pay our correct share towards them.
“Vulnerable people” are present at the low, medium and high user ends so will not be automatic losers or winners. The “simple” tariff might make it easier for some to choose, but if their bill goes up because of it, where is the gain there!
For example, if you incorporate all the fixed costs as part of the unit charges – to give the “simple” tariff proposed by some – a low energy user is likely to save £85 a year, a high user will spend another £109 a year. A low user might be a couple both earning, out all day, modern well insulated house. A high user might be an elderly couple on a pension, in all day, needing more warmth, more cooking and washing, maybe in an older poorly insulated house. Why should this vulnerable couple on a low income have to pay an extra £109 just to keep tariffs “simple”.
Make sure that when we do consider those less fortunate, we do it in a way that doesn’t cost them money.

As I have said before in a related conversation, it is not right that you need access to a computer to sort out the cheapest energy deal. Therefore pricing per kwh is the way forwards. Get rid of the current complex pricing system that is only in the interests of the energy companies.

Malcolm, your argument based on the “poor old couple” does not stack up. These are exactly the people who are unfairly paying over the odds for their fuel. Those who are forced to economise on their fuel consumption in order to make ends meet are severely disadvantaged by standing charges. The high earning couple with 3 kids and a big house are quite happy paying the same standing charge as the low income consumer and then using loads of fuel at a relatively low unit rate, subsidised by the standing charge applied equally to all consumers.
The real reason why the energy suppliers need the standing charge is that without standing charges, it would become immediately clear which supplier was offering the cheapest deal: just like the big signs outside the filling stations….

Donald, both comments revolve around the same point – energy need is not income-dependent. To keep warm, many needy people must spend a much larger proportion of their income on energy than others. Higher users might be well off or they might be poor.
An unfair charging system that does not take proper account of actual costs is indiscriminate in its effect. Distorting the charge purely to satisfy a “simplistic” lobby will not help those who deserve help. Nor will a “simple” charge work in practise to make comparisons any easier.
There are fixed costs in your energy bill, some regulatory and others administration. I suggest that first, the “policy and regulatory” ones, including smart meters, should be removed and paid for out of taxation. On a medium user’s bill these will be around £100. Second, the admin charge should be approved by the regulator. One way then to help the needy might be to pay the remaining fixed cost element – the admin charge – to this group, together with a Winter Fuel Payment. I would only give this payment to those in need – not to everyone over 62 as now.

Malcolm, by your logic (as wavechange already said), filling stations and supermarkets should also apply standing charges. You can add to that list, restaurants, airlines, buses, trains – the list is endless. All these businesses have fixed costs which are not directly related to the volume of business transacted by any single customer.
Any business knows the level of its fixed costs and it has to recover these by spreading the fixed costs across its known total sales volume. There is absolutely no reason why the energy suppliers could not do likewise.
Regards, D

Because the businesses that you mention cannot apply charges in the same way as others – energy, telephone, water as examples – does not make them right and the others wrong. There is no logic in that. A major difference is that you contract to buy all of your energy from one chosen supplier. That allows in principle the real costs to be paid. The examples you mention do not get your exclusive custom – you are free to buy food, petrol and whatever from any outlet you want at any time. It does not alter the fact that each energy customer costs the supplier the same as any other for certain items, still with the majority of the bill depending upon consumption. Charging on that basis is a fair way that your examples cannot do.
I don’t agree with cross-subsidy. That is what “simple” unit prices would do, quite indiscriminately -the poor and needy would not be targetted simply because they are not all low energy users; a lot of better-off would benefit as well. Not the way to solve a problem, I would have thought.

Dave, Newcastle, “it is not right that you need access to a computer to sort out the cheapest energy deal”. As far as I can see the switching services all offer a phone facility as well as internet.

Charlie, I couldn’t agree more with your sentiments. We British seem to have to join every campaign going, whether it is green energy, policing the world at great expense, giving aid to wealthy and corrupt countries, and applying EU legislation to the letter – all to our economic disadvantage. Yet we seem to waste one resource that surrounds us – tidal power.

I share Charlie’s doubts about man-made climate change. What is not in doubt is the way that we are depleting our readily accessible reserves of fossil fuels, which will be needed by future generations to make plastics, pharmaceuticals and many of the other necessities of modern life.

I agree with Malcolm that we need to look at other forms of renewable energy and – above all – urgently look at ways of cutting down waste of energy and use of our natural resources.

247 Home Rescue – if you have evidence, please review the science for me.

It is a great pity that 247 Home Rescue (or anyone else) did not take up my offer of providing the scientific proof that humans were causing catastrophic global warming. I wonder why? Could it be that when they tried to assemble the proof, they, like many others, realize that there is none.

The small rise temperature that occurred in the second part of last century has been dwarfed by many much larger rises (and falls) in the past and the current CO2 levels of 400 ppm again have been dwarfed by much, much larger levels in the past, for example, in the Cambian period the average CO2 concentration was 5,800 ppm, peaking at 7000 ppm.

This slight rise in temperature in the 20th century, a recovery from the 17th century Little Ice Age, occurred over a period of around 25 years and that has now been nearly matched by the length of the pause ie temperature records show that no increase has occurred now for more than 17 years – yet CO2 has been released in ever greater quantities with the developing nations now releasing more than the developed nations. China will continue to build coal-fired generating plants at a great rate whilst urging us to moth-ball ours – I wonder why? And, by the way, so is Germany.

So why are we bankrupting ourselves, and placing so many people into energy poverty, by chasing the entirely unobtainable notions that (1) Britain can make any difference to world-wide CO2 release and (2) that even if it could, it would have detectable effect on climate.

Wind turbines are a rip off. I’ll quote from Booker in this week’s Sunday Telegraph when he talked about the cost of just one turbine in the Mendip Hills. “The answer, we can see on the Ofgem website, is that it can generate for its owner an income of nearly £24,000 a year …… But only around £6,500 of that is the value of the electricity it feeds into the grid. The remaining £17,500 is what we pay in ‘feed-in tariff’ subsidies, through our bills”

We know from the papers that large landowners are each being paid hundreds of thousands of pounds in these subsidies.

What however many people may not realise is that due to the failure to build new power stations and because perfectly good coal-fired power stations are to be decommissioned (even though they are being built in the rest of the world) is that the government is prepared to spend even more money on another scheme. Again I’ll quote Booker from July 2013.

“Last week, when my colleague Richard North and I revealed the Government’s “secret weapon” in the battle to provide back-up for when the wind isn’t turning the tens of thousands of useless wind turbines it hopes to see built, we had no idea what a huge story this is turning out to be. Under its STOR (Short Term Operating Reserve) scheme, the National Grid has been signing up, at vast expense, thousands of diesel-driven stand-by generators to provide instantly available power to “balance the grid” when the wind isn’t blowing. But so huge are the sums the grid is offering to make this power available that hundreds of canny investors have seen that this is one of the great money-making rackets of our time. In old industrial sites, quarries and supermarket premises all over the country they are piling in to install dedicated “generator parks”, capable of producing up to 100 megawatts (MW), in return for “availability payments” of up to £47,000 a year for each MW of their capacity. They then receive additional payment for the amount of electricity they actually feed to the grid, giving them an equivalent of £600 for each MW hour supplied – 12 times the going market rate. Before long STOR alone will be adding five per cent, or £1 billion a year, to our electricity bills. Yet no one involved wants to talk about it. This is a scam so colossal that it makes the owners of those useless wind farms, who get subsidies of 100 or 150 per cent, seem miserably underpaid.”

In the article above these responses, Ms Creagh states “The investigation (by the CMA) must leave no stone unturned in establishing the truth behind energy prices”

Will it?

And will Which carry out an independent investigation into the total cost that the government’s belief in catastrophic global warming is adding (and will increasingly add in the coming years) to our ballooning energy bills.

topher, some energy companies in the UK offer a quarterly direct debit on all their tariffs where you supply meter readings and they charge you for the energy actually used. If you don’t want a monthly DD (that is designed to spread your energy cost equally over 12 months) then this seems a good option.

Good point. I will ask Co-operative energy if they do that.

Hi Topher,

Thanks for sharing your idea. We have had this debate about the Big Six taking up Ofgem’s challenge which you may be interested in.

https://conversation.which.co.uk/energy-home/energy-supplier-big-six-closed-account-owed-money/

@malcolm, It’ll be because until they start putting pressure on energy companies to reduce bills in line with falling wholesale prices, they have nothing else to do.

I would agree Malcolm – all very pointless. I would interpret this as more deflection than direction – pending the anticipated CMA Report. With petrol prices due to be reduced again to £1 a litre, people are beginning to look for answers as to why the impasse in the energy market.