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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 have been given a heads up that this is coming and they have responded by pushing new remote meters in place. These have been found to prevent people from being able to switch. Too many people are finding ways to get rich on the back of the less well off, it stinks!

Personally i believe that the energy companies have far too much power and unless there is a law introduced to compel energy companies to not only cap prices but to reduce them , then they will just continue to rip off the consumer, ofgem is toothless and has failed to halt the exploitation .

I should be interested to know for what other product delivered to your home you have a choice of over forty providers, and if you split between gas and electricity the options are even wider. A few companies are big and powerful but there are plenty of medium-sized ones and smaller specialist ones. The big and powerful ones can generate electricity and import gas on a scale that the smaller ones cannot; the important thing is to make sure the customer gets the benefits of the economies of scale. That is the job of the Regulator as well as the Competition & Markets Authority. I am not sure how any law could make energy companies cap or reduce their prices. They would just go out of business and where would that leave us? They can cap their prices for certain customers if that is seen as the right policy but they would have to make it up by charging others more.

It is theoretically possible that one of the big companies could lower their most popular tariff and be flooded out with new customers transferring, but whether the new customers would offset the price reduction is questionable. And the other big companies would not just stand back and let them get away with a big increase in market share. If it were a successful move smaller firms would probably suffer too big a drop in demand to be able to continue trading and even more power would be left in the hands of the big companies.

john scott says:
5 July 2017

Who is paying for the concessions for the so called vulnerable customers.I would think other not particularly well off customers are having to pay for this.It will not come from the profits of the suppliers.Bt are doing this as well.Give them their benefits and that is it.There will be no point in working with all these concessions.

I quite agree, John. Everybody is quick to say “subsidise the vulnerable” without a thought given to how much it would cost and where it would come from. There are people on the margins of vulnerability who would become worse off which could tip them into the ‘vulnerable’ category. Adjusting the pensions and benefits system is a far more equitable and transparent way of making sure people can afford their household bills. That also has the advantage of encouraging people to consider where they live, how much accommodation they need and what type, and how they live. Some ‘vulnerable’ people [according to some definitions] are living with other family members; is their energy to be subsidised? This muddle-headed pandering to popular political ideology is not actually helpful to those who need support. Now that the government has found that it cannot change the triple lock on state pensions or the winter fuel allowance there is no money in the welfare budget to reduce energy bills for the poorest.

More effort should be put into reducing the energy consumption of people with high bills through alternative energy sources, more efficient heating appliances, better insulation, and changes to living arrangements. This would be an investment in the national housing stock and not a wasteful cost. What is the point of subsidising energy for heat that is then lost to the atmosphere?

I hope that we can have a Conversation about some of the issues you have raised, John. I feel that there is considerable opportunity for many to help the people learn to manage their money better, so that they are not dependent on benefits. I very much support improving older housing to make it more energy efficient and so far the focus has rightly been on the rental sector. Many elderly people are living in their old family homes, often alone, and downsizing to a smaller and more energy efficient home may be too much of an upheaval for those in a poor state of health.

I agree with your comments about political ideology and see many matters as being too important to be decided by politicians. However, I don’t see that it is right that energy companies are allowed to charge some customers considerably more simply because they have failed to engage with the energy market.

Yes, Wavechange, it would be nice if the Conversations didn’t always seem to pander to the popular mood!

I endorse your final sentence.

Looking ahead to an ageing population, I think we have to recognise that the state and voluntary sectors will have to do a lot more more than get people up and put them to bed and take them to the toilet in the mean time. A lot more will need to be done to support people intellectually and practically in their daily lives whether in care or not. Sorting out their finances, banking, energy, insurances, and helping them choose and adjust to new living arrangements – not everyone has sons or daughters on hand to manage these things. It will require a different kind of support, almost one-to-one as surrogate family, guardian, companion, best friend. I don’t know how we get there but I am convinced that is the right direction in which to go.

I suppose at one time fixed price fixed term energy tariffs seemed attractive – you could predict better an annual spend and were gambling that energy prices would not fall. However, as the energy companies are much better at predicting the future, that last advantage is weighted against the consumer so it almost certainly was a way to attract more custom, and then hope they would stop switching and revert to an expensive svt at the end of the contract.

These fixed price tariffs seem to be heavily subsidised by svts; the saving in admin costs is nowhere near the difference in cost between a fixed price and a standard variable tariff. My proposal – abolish fixed price tariffs, use the subsidy to reduce the price of standard variable tariffs and then once we’ve chosen our preferred supplier there will be much less need to make the annual switch.

Price capping is not the answer. That is a form of price control. Otherwise, price capping could be applied to many other essential commodities as well – fuel, rent, baby food……..

What is necessary is fairer prices and easy, straightforward switching process.

Ofgem have over the years proved them selves to be utterly useless and I doubt this latest smoke screen will be any different. Many of our utility companies our owned by foreign companies the profits they make are used to benefit there own energy supplies. E D F is 50 percent owned by the French government. It is farcical that Water Gas and Electric which are essential to life for all of us are used as a commodity for private profit and share holders. The same applies to the rail network were the profits go into German Dutch ect own rail system. Water. Gas. and Electric. should never have been privatised.

Alan Rowley says:
5 July 2017

As a customer who pays for energy on a pre payment meter, I find it unfair that I am charged almost double
for my energy. I understand that one reason is that we prepayment meter customers are considered unreliable. Well, as I have paid ” up front ” for over twenty years perhaps the energy companies should perhaps think of a new excuse to double charge me, or better than that be forced to bring us “up fronters” in line with everyone else.

Serf-No123 says:
5 July 2017

You are right Alan. There is no excuse for charging pre-payment customers a higher rate. In fact I think it should be the cheapest rate that they have to offer as the admin is less for them. Before anyone jumps up and down about the cost of the meter in the first place, compare the cost to the proposed ‘smart meters’ roll out and all the issues surrounding them.

Peter Boulton says:
5 July 2017

The energy market, is doing what every company does when it is sold off, it grabs as much money as it can, before it gets regulated.
The only true way of dealing with this problem, is to nationalise it!

IMO essential services such as energy should be re-nationalised and tariffs fixed at a reasonable level,

Tariffs can only be priced at an economic level, Michael. There is no such thing as a ‘reasonable’ level. The Regulator is required to ensure that the economic level is correct and soundly based on the wholesale cost of energy plus supply and distribution costs.

Julie says:
5 July 2017

There are too many tariffs offered to confuse, it should be easier to switch if paying via pre payment
meter and they should not be so muc more expensive!!
Essential services should not be in the hands of speculators and certainly be ritish owned

it should be taken into public ownership

New customers should not be able to access a cheaper tariff than existing customers. Shopping around for a cheaper tariff is not a fair way to conduct a market.

what about economy 10 tariff you cant switch if your on economy 10 tariff .

Actually that is incorrect, you just don’t have as much choice as everyone else. It only takes a quick internet search to find a number of options https://economy10.com/2016/12/12/economy-10-prices-dec-2016/

It is already quite simple to switch energy supplier so how they are going to make it even simpler will be interesting. My energy company already tells me that there are cheaper tariffs, my problem is that if you choose not to pay by direct debit (and I have valid reasons for not doing so) then you have very little choice but to stay on the standard more expensive tariff and I can’t see anything outlined in the proposals that will make any changes there, so no help to me then.

I have switched Energy Providers a number of times over last few years and from my experience I have not seen any real saving despite the headline number being better to attract you to switch. As soon as you switch they start reviewing and changing your monthly payment in line with alleged future consumption, this appears to happen even when in credit!

The same has happened to me and I have been most offended by it but further investigation has usually revealed it to be down to the consequences of everything in this modern world being computerised. However all the companies I have been with have been amenable to overriding automated settings and were just a phone call away. All that was required to fix it was time and the willingness to listen to musak whilst waiting for attention.

S Green says:
5 July 2017

The energy companies make colossal amounts of profit and one of the essentials that people need is energy. In fact, they have the populations by the ‘short and curlies’ in terms of price and terms. It is not acceptable. Unfortunately too, each government and regulatory body does very, very little to address the problem apart from attempting to make a few minor adjustments. A bit like a half-hearted attempt to make space in a room full of furniture by just moving the furniture around – you’re still left with the same space and the same clutter. Action is needed that will benefit everybody, noticeably.

In fact, S Green, the energy companies do not make “colossal amounts of profit” – not from domestic consumers, anyway. Their margin is in the region of 2-3% of turnover.

Michael says:
5 July 2017

The proposals don’t go far enough. Energy companies should be obliged to switch customers to their best, lowest deal once the ‘buy in’ deal expires, usually after 12 months, and not be put on a standard tariff.

It is time to set up a Nationalised Energy Company. We have been conned enough by these private energy companies. They have been telling us that the price of gas is linked to the price of crude oil. Yet oil prices are way down why is this not reflected in the price of Gas. Year after year the profits of these private energy companies are increasing yet inflation is low and the price of crude oil remains low. This can only mean they are over charging us in their energy prices. Time to stop this exploytation of the consumer.

J Wright says:
5 July 2017

Hello,
I live in a small village in Wiltshire. The village is not connected to mains gas. Therefore I use mains electricity
and propane bottle gas. I cannot get any dual fuel rebate.
The government should make gas companies connect all villages such as this to mains gas.
They pay huge dividends to their rich share holders.

The energy Co.’s have been allowed to develop a cartel in which they take it in turns to hike up prices to an agreed price with all the other members following.

The big companies have no intention of lowering prices, no matter what they say. Low income families should get cheap rates, especially with pre-payment meters and everyone else should pay a slightly higher rate. And as the previous comment says, its all the same fuel so why so many different prices/schemes!

Therer are 40 energy suppliers, so why not check out the other 34 using Which?Switch to see if you can do better?

Energy is all the same when it arrives in your house but it does not all come from the same sources, so costs different amounts, and the way companies buy forward affects prices.

The benefits system is designed to help (hopefully0 genuine needy and deserving people from our taxes. That is not the responsibility of individual companies, is it? Do we think Tescos should give better prices to the poor?

Tesco coordinates collection of customers’ donation of food for the poor: https://www.tesco.com/food-collection/ I believe it also donates surplus food. Other supermarkets do the same.

Our local big Tesco has a large crate in the entrance lobby which quickly fills up with customers’ donations which go to the local food bank for distribution in accordance with various restrictions. The items in the crate sometimes include other supermarkets’ own-label products. I am not sure whether Tesco have any actual engagement with the recipients.

I know all the main supermarkets give surplus food like fruit, vegetables, bread milk and dairy items to food-banks, soup kitchens or welfare charities but whether it is all the surplus each day or just a portion I don’t know. I am not aware of any charitable giving by the energy companies; perhaps they do. There used to be a general guideline, from the CBI I think, that big companies should contribute 1% of their nett profits each year to good causes .

None of that helps individuals directly with their bills, of course, because that would be completely impractical.

This comment was removed at the request of the user

I thought the big city firms did give money to the poor directly. It’s called the annual bonus!

Seriously though, a lot has changed since unemployment pay was stopped after a certain period out of work and job seekers allowance was restricted to people either actively seeking work or in education or in training. And as Wavechange said previously other social problems have contributed to a number of people becoming unsuitable for employment and ineligible for permanent accommodation. A shocking indictment on modern society is the number of former military personnel who are sleeping rough and dependent on passers by for money and food.

As Duncan says, there were many institutions that provided basic shelter and food for a modest sum. Many churches also had places for people to stay overnight. In London there was a chain of hostels called Rowton Houses that provided decent accommodation for working men, although I think the definition of working was applied loosely so long as they could pay their way. Most of these have been demolished or turned into swish apartments or hotels.

Getting back to energy bills, it would be interesting to see how energy costs compare with other of life’s essentials, like toiletries, childcare products, social activity, laundry and cleaning products, phones and devices monthly payments. I am not sure why the energy companies are singled out for such antagonism. Perhaps because it is a resented expenditure and people think it should be supplied at a reduced cost as a public benefit.

Duncan – I have a great deal of respect for those who work to support the poor, Duncan. Helping the poor with charity and benefits is like treating disease and it’s better to try to prevent problems arising. In my view, it is disgraceful that the energy companies are allowed to charge customers significantly more for energy if they fail to jump through hoops that are easy for most of us but are known to be a barrier for poor and disadvantaged people.

I wonder if all energy companies act the same in forcing people onto pre-payment meters. It might be worth Which? investigating the opposite end of energy supply to that which is usually covered [the discounts for those with bank accounts who can pay by direct debit, the people with computers who can enjoy paperless billing, and those with secure incomes who can sign up for long-term contracts at fixed prices]. Some energy suppliers might treat disadvantaged customers more decently than others with lower tariffs, less restrictive conditions, and easier transition to regular terms. There is a generalised assumption that all firms behave in the same way as all the others. I think we should be told.

Ofgem have, and are, dealing with prepayment meters to make tariffs fairer and installation costs less.

I appreciate that, Malcolm, but it would still be useful to see how the policies of the different companies compare. One of the binds that people complain about is that, when they are on a pre-payment meter, switching to a different company is extremely difficult. It ought to be possible to switch easily from a pre-payment tariff with one company to a pre-payment tariff with another – especially if the circumstances would lead to lower bills. It ought to be possible to see where consumers would get the best value on a pre-payment meter.

I hope Ofgem will get a move on and deal with the pre-payment meter concerns that have been identified and commented on for several years now. I sympathise with the the view expressed by several commenters on this site that the terms ought to be much more favourable given the low risk to the supplier of customer payment default. And now that it is no longer necessary for someone to come round and empty the coin chamber there is even more good cause to improve the deal.

David Martin says:
5 July 2017

energy & utilities should never have been put into the private sector.Gov trying to regulate now is rediculous.No other European country has allowed privatisation to go this far!!!