Competition watchdog criticises energy providers for soaring bills
Gas bills have more than doubled and electricity bills have risen by 75% in real terms over the last decade, leading to the competition watchdog announcing a raft of changes to shake up the energy market.
The Competition and Markets Authority’s (CMA) final report into the sector found energy bills have “far outstripped inflation”, but consumers aren’t getting any more for their money, with customer service levels “deteriorating”.
Complaints about the six biggest providers increased six-fold between 2008 and 2014. These six firms – British Gas, EDF, E.on, Npower, Scottish Energy and Southern Energy – also charged customers 11%-15% more than other providers between 2012 and mid-2015.
In some cases, the big six, which serve 90% of the UK’s 31 million households, were found to be charging customers at least 20% more than they could have paid elsewhere.
The CMA concedes that there were some signs of improvement in 2015, with complaints falling and prices either remaining unchanged, or falling slightly, but says that this isn’t enough.
It has today announced over 30 measures, which it claims could save consumers £1.4 billion a year - some households stand to save at least £300, it estimates. These measures include:
- Sharing the details of non-switchers. Forcing providers to share details of people who have not switched tariffs for at least three years with Ofgem, the energy regulator. This information will be held in a “secure” database, allowing other providers to send targeted information showing how much these consumers might save by switching. Consumers will be free to opt out from this list.
- Capping pre-payment tariffs. A transitional price cap, which has yet to be decided, will be set for people on pre-payment meters - who pay for their energy in advance. The CMA notes the cheapest pre-paid tariffs are £260 to £320 more expensive than the best direct debit deals, and that a cap could potentially saving £300 million per year.
- Pressing ahead with the smart meter roll out. The CMA says the planned smart meter roll out will help people find better deals. Sharing smart meter data with price comparison websites will also make it easier for consumers to decide which tariff represents the best value.
- Encouraging cheaper green tariffs. The CMA says upgrading infrastructure will reduce the cost of distributing electricity around the country resulting in cheapest low-carbon tariffs.
The CMA will now publish a timetable for introducing the changes, which it anticipates will happen over the next six months.
Some of these changes are however, simply recommendations, although the competition watchdog does have the power to enforce some of its suggestions.
‘Our measures will help more customers get a better deal’
Roger Witcomb, chairman of the energy market investigation, says: “Competition is working well for some customers in this market – but nowhere near enough of them. Our measures will help more customers get a better deal and put in place a modernised energy market equipped for the future.
“With far too many customers paying hundreds of pounds more than they need to, they will be alerted to the better value deals that are out there and it will be easier for them to identify a good deal and switch to it. Those that can help with this process, like price comparison websites, will be given the ability to play a more active role. In other markets, they’ve played a big part in driving down prices, increasing switching and enabling suppliers of all sizes to reach customers and, freed up, they can do the same here.”
“We believe our measures alongside other future developments will mean energy customers see real improvements over the years ahead.”
‘It’s vital no time is wasted putting these recommendations into action’
Consumer action groups, comparison sites, and the energy regulator have responded positively to the report – but they stress the need for this action to be taken speedily given the report has been two years in the making.
“The CMA’s package of remedies should help more consumers engage in the energy market, boost competition and reduce bills,” says Richard Neudegg, at price comparison website uSwitch.com.
“It’s taken two years to get here, so it’s vital that no time is wasted putting these remedies into action. Customers shouldn’t have to endure another winter of rationing their heating just to make ends meet.”
Alex Neil, director at consumer group Which?, says: “Today’s report confirms what we have always known – that the energy market just simply isn’t working for consumers… It’s high time for energy companies to accept they need to change.
“After a two-year investigation, we need to see swift action by suppliers and Ofgem to set out how they will implement the review’s recommendations. If the energy companies fail to show they can treat their customers fairly, and deliver better service and competitive prices, the regulator must be ready to come down on them like a ton of bricks.”
Ofgem’s chief executive, Dermot Nolan, says: “The CMA’s remedies, combined with smart meters and faster switching, clear the way to secure a new and better deal for all consumers, especially the vulnerable.
“We urge the industry to get behind the entire package of remedies and to work with us to deliver an energy market that works for both active and disengaged customers as quickly and effectively as possible.”
Are energy companies doing anything right?
The report did recognise some success for the energy sector, specifically around reducing emissions and ensuring a reliable supply of energy to the UK.
Renewable sources now provide around a quarter of the UK’s energy supply, and both gas and electricity use has fallen over the last decade.
As a result, greenhouse gas emissions from power suppliers have fallen by about 40% since 1990, and household emissions are 20% lower over the same period.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).