Ofgem vows to get tougher on energy giants

Published by Jenny Little on 01 August 2011.
Last updated on 08 August 2011


Ofgem wants the Big Six to auction off up to a fifth of the energy they generate, to make it easier for smaller firms to operate in the sector. Currently, the large companies have more than 99% of the UK energy market.

Alistair Buchanan, Ofgem's chief executive, says: "We will pursue breaking up the stranglehold of the Big Six to encourage more firms, such as new arrival The Co-op, to enter the energy market and increase the competitive pressure on the big firms."

The Co-operative recently announced it is starting to sell gas and electricity to UK households through a simple tariff and single-unit price. It admits that its service may not be the cheapest available, but says it will be "very competitive over the long term".

Indeed, Which? has found that smaller suppliers repeatedly trounce their bigger rivals in its regular customer satisfaction survey, with Ovo Energy and Utility Warehouse topping the league this year. Energy giant nPower languished in last position, not far behind EDF and British Gas. The research considers not only customer service but also value for money - and smaller suppliers beat their larger peers on this measure too.

However, at the moment, there is only a handful of small suppliers - including Good Energy, Ecotricity, Ovo Energy and Ebico - struggling to win customers from the dominant six companies.

But Phil Levermore, who runs not-for-profit energy company Ebico, believes the energy sector's bad reputation, along with upcoming energy-efficiency legislation, offers an opportunity for smaller companies to win business from their larger peers.

The Green Deal (a government plan to make Britain's homes more energy-efficient) is due to come into force in 2012. Householders will be able to make energy improvements to their homes with no upfront costs, and should recoup the payment over time through reduced gas and electricity bills.

"The Green Deal is designed to get people to use less energy, but are you going to trust a Big Six supplier to sell you something that means your bills will come down and they earn less?" asks Levermore. "It may be that smaller firms, many of whom are already operating in the green energy field, will be more trusted to deliver these changes and will win more customers."

Energy traps

Ofgem has been criticised in the past for being too lenient on larger energy providers, but it has now vowed to be far tougher in pursuing and punishing firms that break its guidelines.

The watchdog is currently investigating EDF, nPower, Southern Energy and Scottish Power for alleged mis-selling, as well as conducting a probe into a "significant" difference between Scottish Power's standard and direct debit tariffs.

Check out the Moneywise Energy Switcher to see if you could save money on your utility provider


Scottish Power is also under the microscope for using potentially misleading marketing to suggest customers could save more than £450 a year if they swapped to its new Direct October 2012 tariff.

"There are lots of traps into which unwary consumers can fall," warns Hall.

"Early redemption penalties are one: you may want to change deals, but then discover that there are exit charges hidden in the small print of your current deal. EDF has a five-year fixed-term deal, for example, which has a £200 early redemption penalty. And some deals are simply not as attractive in reality as they first appear."

Other common tactics employed by energy firms to squeeze more money from their already overburdened customers include pushing up the price of best-buy tariffs a few months after a customer has switched, and failing to inform clients of price rises for up to three months after their introduction.

This is despite requirements, in force since April, stipulating that providers should give at least 30 days' notice of any increase.

Then there is the issue of cold-calling. In May, Scottish and Southern Energy was found guilty of misleading potential customers on the doorstep in a landmark case brought by Surrey Trading Standards.

Doorstep mis-selling has been controversial ever since the tactic was taken up by energy providers after the privatisation of the utility industry in the 1990s. Many householders complain they find energy salespeople intimidating or duplicitous; and Ofgem research indicates that almost half of those who switch on the doorstep end up with a more expensive deal.

Hit where it hurts

"The whole system of the electricity and gas market is ridiculously complicated," says Levermore. "It was designed 15 years ago to protect incumbent companies from cowboy suppliers, but it's profoundly flawed and disproportionately favours the larger suppliers."

So great has the furore around doorstep sales become that Scottish and Southern recently announced it was suspending the practice with immediate effect.

Ofgem is now waiting to see if and how the Big Six will implement its recommendations, which are intended to shake up the energy industry. In the meantime, however, householders' bills continue to rise and critics remain doubtful that the big players will change their ways.

Energy Secretary Chris Huhne advises consumers to take matters into their own hands if they want to see real change. "Consumers don't have to take price increases lying down," he says.

"If an energy company hits you with a price increase, you can hit them back where it hurts - by shopping around and voting with your feet."


Leave a comment