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Will the energy regulator’s plan make a difference?

Energy price pound

Ofgem, the energy regulator, has announced that a plan is on its way to tackle energy bills and relieve the burden on the most vulnerable energy customers in the UK. But will it be enough?

Today the energy regulator has outlined proposals to deliver a fairer, more competitive energy market that will help around two million customers on low incomes.

Update: 7 August 2018

This weekend, the government announced an independent review of energy costs.

The entire electricity supply chain will be under scrutiny as the independent review seeks to uncover ways of reducing costs and meet the government’s ambition of achieving the lowest energy bills in Europe while meeting climate targets.

The review, led by energy expert Professor Dieter Helm CBE, will build on commitments made in the Industrial Strategy Green Paper and include the role of innovative technologies like electric vehicles and artificial intelligence. Although a step in the right direction, the time for action on energy bills is now.

Our managing director of home products Alex Neill said: ‘It is right to look at how to keep costs down, but yet another review is going to be cold comfort to the millions overpaying on their energy bills right now.’

So far half a million people have backed our campaign for fair energy prices. We want to see urgent action from the government and regulator to tackle the lack of competition in the energy market and ensure all consumers get a good deal on their energy prices.

Ofgem’s plan

While the regulator has announced the plans to deliver a fairer energy market, it hasn’t yet published the full details.

The regulator has proposed a new ‘safeguard tariff’ specifically for vulnerable customers and it plans to hold a summit in July to consider which ‘safeguard’ tariff’ would be best. One option would be to increase the existing cap for four million households on prepayment meters to include those who receive the Warm Home Discount.

Some of you will recall that earlier this year we pressed for action from energy companies to tackle their often poor value standard variable tariffs. Today, the regulator noted that energy companies must do more to help customers who are stuck on these tariffs switch to a better deal. The regulator will announce reforms to improve energy switching services.

The regulator also announced a proposed cap for charges to install pre-payment meters under a warrant, and ban these charges altogether for the most vulnerable energy customers.

But, the plans announced today fall short of the Prime Minister’s aim to help 17 million families on those often poor value standard variable tariffs with an industry-wide price cap, as outlined in the Conservative’s manifesto. The policy to tackle energy bills with a price cap was also lacking from the Queen’s Speech on 21 June.

Energy bills

While we welcome the plans to help the most vulnerable as well as steps to make switching easier, will these plans go far enough to help the millions in the UK are overpaying for their energy?

We believe that any price cap intervention in the energy market should first consider our five test points before implementing:

1. It must not cause longer-term price increases
2. It must not remove incentives for providers to improve their service
3. It must not stifle innovation
4. It must lead to a truly competitive energy market
5. It must have clear criteria for bringing any cap to an end

Ofgem will be consulting on its proposals and we’ll be feeding in to this.

Do you think Ofgem’s planned interventions will be enough to deliver a fairer energy market that finally works for all consumers?

Comments

Power companies should bring down the energy prices to a fairer level for all and one price right across the board why should there be different tariffs its the same energy we all use and the governments should step in and make sure we as consumers are given a fair deal.

Let’s face it, it was much more fair and easy for consumers before the needless privatization of the gas and electricity distribution systems. Generators can compete, but a local network doesn’t.

Ofgem have done nothing to price cap and protect the vulnerable as it is – they are toothless imho.
There needs to be a fairer pricing FOR ALL users as everyone is always getting ripped off, you only have to watch Watchdog and Money Saving Expert to know that!

They should stop the standing charges or legislate to curb them to the real cost of maintaining a meter. Profits should only be made on the fuel supplied.

Hi Peter, i thought i would let you know that i am with a company called Ebico for my gas and electric and they do not have any standing charges. I switched almost a year ago and it was the best thing i ever did. I would check it out if i were you. You won’t regret it i know i don’t.

When we all have smart meters nobody will have to read our meters but does this mean a reduction or abolition of standing charges? Even at the moment when someone comes to read the meter it usually isn’t both meters & so totally inefficient.

Laurie says:
5 July 2017

The standing charge will stay to reimburse for the cost of the smart meter….they say they are free but the charge is to be included within a standing charge

Dawn De says:
6 July 2017

I was with them (Ebico) for a short time – the energy is actually supplied by SSE. Yes no standing charges but the fuel is more expensive and was slapped with a huge bill. Was told this was the right tariff for me by Ebico- but it is only for people that are light users. CAREFUL with Ebico- I would not recommend them.

David Carver says:
4 July 2017

Time to nationalise public utilities; we all use them, we should own them. Take back control.

Don’t tell me the energy companies will not find a way round Ofgen’s fairer tarrif policy to maintain their profit margins.

The privatisation of the electricity generation and supply has been an absolute disaster and has been fundamentally flawed from the outset. There is no real competition, it is a complex monopoly. OFGEM is simply not fit for purpose.

The supply companies do not generate any electricity, the DNO’s do. They only buy it from the DNO and handle the billing process to their own customers. The way they charge for this is basically unfair and does nothing to contribute to the objectives of the country as a whole. They should be charging less for low users and more for high users. At present the reverse is true. At least it would encourage the profligate to reduce their energy use and maybe save the building of another power station!

The comparison companies are a waste of time, they just add another layer to the unnecessary complexity of energy pricing. If you use them to find the price to you, they will not tell you the real price you will pay per unit compared to a low user, or a very high user. (if you doubt this do a search with an annual usage of 1200Kwh, and then do the same with 12000Kwh and check the cost per Kwh for both cases)

Standing charges are a nonsense. The maintenance and upgrades to the energy infrastructure is done by the DNO, the cost of which is included in the wholesale price they charge to the supply companies. Standing charges increase the cost to frugal users and reduce it to the profligate. In effect encouraging people to use more, when they should be encouraging them to use less.
This can be done with variable pricing on a monthly, quarterly or annual basis.
Electricity should be charged per unit (Kwh), say, wholesale price, (WP) plus 5% for the first 5 units per day, WP plus 25% for the next 20 units per day, WP plus 50% for the next 20 units and WP plus 100% for units above this. The exact numbers would require a full analysis, perhaps that would be a useful task for OFGEM, if they could be bothered.

If none of this sparks any interest, how about the government setting up a ‘not for profit’ model energy supply company available to anyone in the country, run for the sole purpose of setting a base price for a proper variable rate tariff. Now that would generate some competition and no need for a price cap.

Some people with low incomes have to have the heating on all day at high temperatures. Are they being profligate and need to be penalised, Serf-No123?

Serf-No123 says:
4 July 2017

I said it needs a full analysis to set the rates correctly.
You would need to define how many units a day your ‘some people’ would be consuming, before I could address your question.
If you are referring to people who have a large usage due to disability or illness, then these would need to be subsidised as a separate group.
My suggestion is aimed at the 95+% who are the poor, the barely managing and the ordinary people who are currently being made to subsidise the rich

John, the argument that many high users are profligate is brought up occasionally, conveniently forgetting that some users are elderly, or large families, poorly insulated rented accommodation, in all day, infirm, maybe electric only – all needing more heating than other more fortunate users. Of course most are not “profligate” – they would use much less energy if they could.

Serf-No123 – You used the word ‘profligate’ twice in your main comment above in relation to people who have high energy use and you set out a proposed formula for upwardly-tiered unit prices [subject to a full analysis]. I agree that it might seem to be fairer if unit prices were consistent irrespective of consumption but the present system does assist those who need to use more energy. Any graduated scheme would cause another series of traps for people who, as Malcolm says above, have no alternative but to use more energy. If 95% of households are in the ‘needing subsidy’ category the economic model will be so distorted as to be unworkable. The 5% of domestic consumers who are rich and are expected to pay more for their energy are possibly out all day and actually have lower consumption. They might also have solar panels and more efficient heat sources thus reducing their consumption from the grid.

I have long been supportive of high users paying more for energy to discourage waste. Our present lifestyle is unsustainable. Many of those who have a genuine need for more energy can afford to pay for it. Low users would be unaffected.

There are so many examples of wasted energy. I wonder if my neighbours will be going abroad and leaving the water heating on, like they did last summer. I suspect we could close a power station or two if less energy was wasted.

I agree there is something to be said for incentivising consumers to use less energy but I think the pricing mechanism needs to be more subtly modulated to ensure that those who need more energy for sensible reasons as Malcolm has outlined [and not just to heat the pool water] are not penalised. Cutting back the downward unit price taper at the highest levels would be a good start. One answer in a high top-end tariff scenario might be for big families and and others in need to have two meters so that high consumption is averaged between them and charging is therefore equitable. Alternatively, I expect high-tech Smart meters could be programmed to achieve the same result more readily. Experience with the benefits system shows that changes of circumstances can be a tricky issue where people are reluctant to declare that their needs have reduced.

I cannot understand a comment that says high users should pay more for their energy to stop them wasting it. They already pay more by the very fact they use more. And why assume they are “wasting it”? I know a situation where someone has a well insulated double glazed house but are in all day, more washing than normal, require more heating than normal and use more electricity for medical reasons. They are not well-off, are not on benefits, and have to pay a high energy bill. Penalise them, should we?

Nor do I see any foundation for the comment that many of these high users can afford it. Many who have the misfortune to use more energy than the norm do so because they have to, as I have explained elsewhere.

Perhaps we should consider charging those who are fortunate enough to use less energy more? Often, (I admit to unsubstantiated foundation), wealthy small families with two people working, out all day, eat in restaurants, well insulated property requiring little heating…….No of course we shouldn’t.

Should we charge more for petrol and diesel for those with gas-guzzling cars, those who eat more than others………………………. They, too, already pay more.

It’s a funny old world 🙂

Malcolm – This is what you get when well-intentioned people start tinkering with the rules of the market place. The welfare budget is the place to deal with needs, not the energy business which is already burdened with obligations, plus added VAT, that hurt the poor and needy.

I do find it hard to support lower unit prices for higher consumption, though, except for the reasons already cited to assist those for whom it is not a choice but a necessity. I am sure there are other mechanisms for achieving that objective.

I agree that we need to nationalise energy, infact all public services, and there should be a simple across the board rate for gas and electric. This story on energy continues to go on and on, despite all the stuff in the news about this changing and that changing, and so on and so on, but as we see nothing substantial has changed.

Billing of consumers should include a value which is made clear and goes to the myriad of subsidies for green energy, Smart Meters etc ; a two part bill one for energy used and the add-ons.
Vulnerable consumers could have the subsidy element reduced.
There were occasions very recently where there was overcapacity in the grid some companies were being paid very large sum to run this excess to earth. Storage , battery technology has still much development to do.
I understand that large battery farms are being considered, a simpler solution is for each householder to be able to store energy in a battery charged at overcapacity times and similar.
Unfortunately nothing in this life is free and any development has to be paid for

Energy and Water are essential
For all people, while I am not a fan of nationalization per gaps there is case for government making sure these services are affordable to all.
Dwr Cymru or Welsh water are a not for profit organisation
And in my experience works
Well, perhaps all services that are need by all should be run this way ?
But caps are only a stop gap solution .

A price cap is not the answer in a competitive market where there are many suppliers giving customers ample choice of switching to a cheaper supplier. If customers are too lazy to shop around for the best price and switch that is their fault, any government interference will kill the free market system and in the end will mean dearer prices for those that take the time to compare prices and switch. I am a 70 year old OAP and switching is not difficult at the moment, I have done it many times, so I cannot see how it can be made much easier.

I can switch, it will save me £60 , but will have to pay £ 30 and £ 30 to get out gas & elect, SO no saving, . Jan 2016 payed £111, June 2016 complained that I had £350 in credit, better in my bank, First utility reduced it to £ 87, NOW in june this year its going to be £103 with still £200 in credit. When they changed my price to £87, they said some one would call me on the PHONE- not happened. I will be calling them this week.
So R,H things are not easy to get out of, my contract ends in March 2018, AND NEVER was told I was being put on a 3 YEAR contract

Jane Powell says:
5 July 2017

I think that you must be a very fortunate OAP to have the means and ability to handle switching energy supplies yourself.
Many OAP’s do not have access to the internet or the knowledge to use a computer or smart phone if one was available. I wouldn’t call them Lazy.
There are also many people with Learning or other disabilities who wouldn’t have any idea of how to go about making these changes and are probably unaware that they are being taken advantage of by the energy companies. They are definitely not being considered and I wouldn’t call them Lazy.
Most of us only learn about issues such as Energy Price comparison’s from the internet. From there we also learn the action’s that we can take to make changes. We are the fortunate ones who are also able to afford this technology and have the knowledge to operate it.

Some don’t seem to be able to understand these issues, Jane. We are very fortunate.

I have a relation who does voluntary work for Citizens Advice and she understands many of the problems faced by members of our society.

Maureen says:
5 July 2017

Hi jane, there’s thousands of OAP’s who are on the internet ,it’s surprising how much they know about it. I’m 78 years old and I know a lot about it. But if i didn’t know i could always get someone in the family to do it .Almost every family in England has got someone who’s on it it’s not hard to ask them for some help . And those on disability must have carer’s who can deal and help them to do it.

I agree with you, Maureen, that a very large number of elderly people are very capable of doing things on-line, and I do get fed up with people constantly branding the older generation as daft and incapable. My personal view is that we have probably got our heads screwed on and facing forward more than some half our age but the “little old lady” stereotype will not go away.

However, I doubt if things are quite as straightforward as you suppose. I think there are large numbers of older people for whom computers and smart phones are a mystery because their working lives did not involve such things. Perhaps I appreciate this more living in a rural area, but again I wouldn’t want to generalise; it can apply in cities too. Unfortunately there is also a large and growing number of people who do not have relatives close by who can help. Family dislocation, emigration and divorce or separation have altered things a lot. There are also many who came to this country on their own; they might have sons or daughters but a range of factors, including language, cultural and development differences, can inhibit their use of the internet.

It’s a wide landscape , Maureen, with a distant horizon, and it’s extremely hard to take it all in.

I think this inaccurately portrays OAPs. I mix with a great many; the vast majority use smartphones, have computers, use the internet and are particularly savvy from their accumulated experience. We should not, I think, make this assumption. However as people really age (a 65 -80 year old OAP often has all their faculties) they will need help to keep up with the modern world. For many I would hope family would help them with this. For others maybe we need to organise more voluntary help – perhaps from the less-old OAPs.

Energy is one of the areas of supply that needs to be taken back into public ownership with one tariff for all consumers. It has been a nightmare to keep on top of since it was privatised

I am not going to take this opportunity to argue against nationalisation of the energy industry, but something to bear in mind is that, even when it was under complete state control, unit prices and standing charges were far from uniform across the country. There would be pressure to have different charges according to the costs of production and delivery.

Paul says:
5 July 2017

Agreed, at least if this was the case the government could put any profits back into the country’s coffers like the NHS

I’ve worked in the energy industry for the past decade, and reading the ill-informed, often factually wrong, muddle headed nonsense in the comment forums on energy is quite depressing.

The key driver of high and rising prices is nowadays the result of endless government meddling in the energy sector. How do you think that the money is recovered for the £20 billion+ Hinkley Point? Or all the endless wind turbines? Or the wildly over-subsidised solar PV systems? Or the grid reinforcement to cope with all of these new toys? Prices will continue to rise for most of the next decade because the policy decisions have already been taken by government. You cannot see how much this really is because of the multiple and intentionally opaque cost recovery methods, but I guess that the “policy costs” of your electricity bill are about 40% of the total.

On the subject of state owned suppliers, of which many commentators approve, why aren’t they with one of the many local authority energy suppliers? Presumably they will be both cheap and (magically) immune from the prices rises that will continue coming our way. But be careful what you wish for – if you want standard prices for all, then there will be no value in switching, and all of the cheaper tariffs that you can get by switching will disappear. Energy supply works like most retail insurance markets: There’s little or no profit, and often a loss for suppliers offering what the industry calls “customer acquisition tariffs”. They hope that sufficient customers will roll onto a higher margin standard tariff at the contract end, or will buy additional products and services. If you transfer every time your fixed tariff ends, then you’re getting the best deal, but you’re probably not covering the costs of any energy supplier. In a “fair tariffs for all” world, your prices will go up.

I do know that some large suppliers actually chose to lose customers last year by deliberately not offering any attractive tariffs, in order to avoid the negative impact on profitability. But if their remaining customers can’t be bothered to change supplier, is it really the job of Which? to demand change?

Well good for you with your decade of experience working in the industry and being able to tell us that “reading the ill-informed, often factually wrong, muddle headed nonsense in the comment forums on energy is quite depressing.” Thank you for your well informed contribution.

I suspect we already have fair prices, in the sense that most current retailers can only make quite modest profits.

I think that when many people complain about “unfair prices” they are actually complaining about the magnitude of the prices, and not their fairness.

Many of us have already done our bit for competition (to drive prices down) by changing suppliers. Those who have not yet done so, and are are not impaired from doing so, really ought to ex-digitate and follow our lead.

It’s a fiendishly complicated process, isn’t it? AIUI most of the energy suppliers’ profits are made by reselling electricity they’ve bought on the wholesale market. But Grid is the main distributor (and the only one at the national level) and generation, once a simple process of burning coal to produce high pressure steam, is now anything but simple, with FITs, wind power, solar, gravity-feed water, hydro, Nuclear and possibly tidal arriving, proposals to use mini-nuclear plants on the table (each town would have its own nuclear plant) and the endless discussions about how to generate power safely (free from CO2). The entire thing now harbours such a miasmic atmosphere that it’s very hard to know the facts.

In our focus on domestic energy, we should not overlook the fact that the major energy suppliers have massive commercial, industrial and public service contracts which are probably contributing the most to their bottom line. The smaller suppliers are at a disadvantage in this respect because they can really only tap the domestic market and are ultimately unlikely to be the best value over the long term.

Even The Co-operative Energy, which has been progressively enlarging its customer base over the last few years, is struggling to be competitive on price and might be favoured mainly for ethical reasons and its commitment to renewable sources.

Most energy companies will never do what the people want, they are out to make as much money as humanly possible. They are working for the share holders, not the customer, and as such will go out of there way to get those extra pounds where they can. this is why when people on low incomes, who have trouble paying there bills are put on key meters, the customer pays though the nose for the privilege of having hot food and a luke warm home in winter.
I am a pensioner, and have been with the same supplier for over 30 years, they have helped me with my energy in loads of ways and I will never change, because although I pay by direct debit I can talk to my energy company at any time, I am not left hanging of my phone for hours waiting in a cue, they will tell me how long the cue is and arrange to call me back.
When my latest contract is due to end I call my supplier and set up a new contract saying that I have been with them for over 30 years and as such I always get a good deal.
I have been inundated with calls from other suppliers , E.D.F being the most pushiest all claiming they can give me a better deal. But after 30 years I know the company I am happy with. And with the latest news about Hinkley costing an extra 1.6 billion it will end up with the consumer paying the price for E.D.F.energy If the site is ever completed. not that I will see it, at 73 I think I will be a memory of my family and the odd photo.

All company’s should be charging the same across the board its like if we all go to the shop and buy lets say a bag of sweets that says 99p and we will all pay that up and down the country but the energy company’s seem to want you to pay more than it’s worth but they know you need it then a new company come’s along and they say they will do it cheaper but then 6 month’s latter you find out you are paying more so then you have to start again this needs to be stooped and caped on all these kings of energy Gas, electricity. We need the government to stand up to these company’s sod the shareholder.Us little people are not on £25 k a year but we still have to find the money to pay the bills and not able to feed the children properly so yes they need to be CUT and CAPED
as it’s getting out of hand now

Until the government steps in and makes these energy companies; give their customers a fair price for the energy they use nothing will change.
The ombudsman has been useless in cracking down on these price hikes; giving the energy companies huge profits.

Yes I agree,

I think that if part of the energy companies were nationalised ,they wouldn’t, have the control they got and any profits could be put back in to make energy cheaper and fairer for all customers .including the factories that can make their prices competitive ,there bye saving jobs

Norman Callow says:
4 July 2017

The Gas and Electricity we use is the same on (e.g. Easter and Boxing Day) it is no different 365 days of the year, we pay for our usage via meter readings to the energy company and Direct Debit from our Bank Account.

We have had 8 weeks hols each year, the graf is the same whether we stay at home or go away, SO much for METERS !!

This comment was removed at the request of the user

There needs to be a halt to rising prices,,and fat cat pay rates…I use pre-payment meters, out of choice as I can keep a tight reign on the amount of gas and electric I use,,I exist on an ill health pension,,and some pip,,,but finding the heat or eat dilemma come to me, was hard,,I chose to eat and not top up the gas,,,I do not want to get into debt with a credit meter and have extortionate monthly dd payments.

So OFGEM now has to stop the big increases,,and make the rates more affordable for those who are in poor level money circumstances,,, nobody should be cold, live in the dark and not be able to have hot food each day.

Step up and make the companies bring down their prices,,especially those on prepayment meters,, who have to balance money and for all living on tight benefits,,,

The tories promised this,,and OFGEM seemed to have no teeth to make the companies comply,,,before the last tory lot denationalised the gas industry,,,the prices were fixed and fair,,,and nobody was worrying about shareholder dividends,,,,I know as I worked for British Gas for 19 years,,,and was there when Thatcher started the shareholder culture off,,,,what a mess she caused to all gas users,,,

I do not think the lower prices for dd accounts,,is fair,,as they are then finding the monthly amount is very high,, and they have to keep paying a high fee even in the summer months when the weather is warmer,,,so they start the swop to another company,,and the spiral goes on,,,

Also the companies should publicise the rates they charge,,, so a decision can be made as to the best rate for them,,,,what they do is try to pressurise you into swapping before they tell you the rate,,,this annoys me,,so I do not bother to change as the pressure is really bad,,,

These are my thoughts at the moment.

It’s interesting that many commenters think the energy companies are good at making big profits. In fact they make relatively small profits, in the region of 2-3% of turnover. The numbers look big because the turnover is huge. Some of the smaller companies have gone under or been bought out by larger companies. This was largely because they didn’t have the buying power to secure supplies on long contracts and were scuppered when wholesale prices rose. The Regulator, usually condemned as useless, managed to get the customers transferred to other companies with no detriment to their accounts or continuity of supply. With forty plus energy supply companies out there the right tariff for every household is available somewhere. I strongly agree that there should be help for people who cannot do the switching themselves. I also agree there should be some price relief for the vulnerable – but we haven’t defined that category yet. Should anyone in receipt of state benefits have to pay the government levies which bear heaviest on those who can least afford them and who struggle to heat their homes for all manner of sound reasons?

Let’s try defining “the vulnerable”. Is it just those whose total nett income doesn’t cover their basic and essential costs of living irrespective of the size and condition of their property? Is essential energy use restricted to space heating, water heating, cooking, washing, cleaning and lighting? What allowance is already made in pensions and benefits for the essential and the extra costs of living? What should be done to help those whose spouse or partner has died and they now have the burden of keeping the house on one income? Let’s start doing the difficult thinking and not just saying “renationalise” as if that will solve all the problems. It might . . . but no one has yet come up with a model that would address all these questions.

Starlight says:
4 July 2017

Essentials to life like water and power should not be in the hands of, (especially foreign), speculators. They should have remained nationalised so that everyone in the country gets a fair deal.

That is impossible to stop so long as we are in the EU, Starlight. I doubt it will be any easier after we quit. It will be hard to turn capital away.

I suggest it is impossible to stop while we trade worldwide. It is the way almost the whole world operates. I am not sure that “nationaiised” and “fair deal” go together. Once politicians can exert undue influence on such enterprises they will be used for political gain – particularly around election time.