Are energy companies treating customers fairly?
The first three months of 2009 saw all of the six big energy companies unveiling price cuts in response to cheaper wholesale gas prices. But not all customers will benefit, and the cuts pale in comparison to dual rises seen in 2008.
With oil prices falling and many locked in to higher tariffs, some critics argue energy companies aren’t passing on the savings.
So, are energy companies treating their customers fairly?
YES says Peter Jenkins, spokesman for the Energy Retail Association:
The media has a negative perception of the energy industry, but the reality is different.
The level of competition in the energy market in Britain is second to none, and energy companies operating in this market provide more direct help to their vulnerable customers than any other comparable industry.
The recent investigation into the energy market by Ofgem, the energy regulator, found that it is
working well for the majority of customers. In areas where Ofgem deemed that the market
was not working as well as it could, energy suppliers are responding by bringing costs down
and trying to ensure that customers are not unfairly disadvantaged.
Companies are working closely with the regulator to ensure all customers benefit from the competitive market, regardless of their circumstances. The advent of smart metering technology, for example, will allow customers to monitor their energy use and take measures to reduce it, so that competition and choice will only increase in the future.
Help for vulnerable customers and the fuel-poor has also never been more accessible or more wide ranging. Companies have committed to spending about £3.5 billion on energy efficiency measures and about £400 million on voluntary initiatives over the next three years.
After all, energy is something everyone needs and uses every day. So it’s in all our interests that the perception of the industry is balanced with an analysis of the facts.
NO says Mark Thomson, spokesman for energylinx.co.uk:
If you had spoken to any energy supplier over the past few years, they would have said that the increasing cost of wholesale energy was the sole cause of the increases being passed on to the UK consumer.
Between January 2003 and January 2009, the price of wholesale gas rose by 175%, while customers saw their bills increase by about 169% over the same period. This has taken the average yearly gas bill from £309 to a staggering £833.
This may appear fair, but it’s not the full picture – suppliers buy gas in advance, so the relationship between the domestic sale price and wholesale price is normally six months out of sync.
Using this logic, the increase in domestic energy prices over the past six years should in fact have been around 154% – some 15% less than consumers are currently paying.
Although the recent 10% cut by British Gas will go some way to ease the pain of higher energy bills, an estimated 2.7 million customers signed up for a fixed-price energy tariff after last year’s hikes.
However, should they choose to leave their plan early they will be hit with an exit fee.
Taking into account the current price of wholesale gas and its predicted downward trend, suppliers should either remove altogether the exit penalties that they apply to their plans or, at least, allow customers to transfer within the same supplier at no cost.
If energy companies want to avoid the accusation that they are not treating their customers fairly, they should start by removing these punishing exit fees. Otherwise, customers who signed up to a long-term fixed price energy deal last year will be paying over the odds for some considerable time to come.
Not to be confused with an early repayment charge (ERC). Exit fees are levied on top of ERCs, which are a method of clawing back lost interest on a loan repaid early. By contrast, exit fees are charged for the administrative work this entails. They are charged as flat fees, from £150 to £300. However, in January 2007, following mortgage lenders surreptitiously raising fees sometimes by fivefold, the Financial Services Authority (FSA) intervened and most mortgage lenders removed exit fees from new mortgages. If you paid exit fees on your mortgage before January 2007, you may be able to claim them back.