Consumers are failed by energy companies

29 July 2013

Sky-high energy bills coupled with soaring energy company profits has led to a 'deep mistrust' of energy firms, according to a committee of MPs.

A lack of transparency over the link between company profits and bills is undermining trust in the so-called 'Big Six' firms that effectively control the UK's energy market, MPs on the Energy and Climate Change Committee (ECC) warned.

They also said that the regulator Ofgem has failed to take decisive action to improve matters.

The report states: "One thing is clear; energy companies have been poor at communicating with their customers. Confusing bills, complex tariffs and a lack of transparency around profit margins have fuelled deep mistrust among consumers."

ECC spokesman Sir Robert Smith MP said: "At a time when many people are struggling with the rising costs of energy, consumers need reassurance that the profits being made by the Big Six are not excessive.

"Unfortunately, the complex vertically-integrated structure of these companies means that working out exactly how their profits are made requires forensic accountants. Ofgem should shine a brighter light on the internal structure of these big companies."

Compare energy prices and switch provider

The six largest energy companies in the UK (British Gas, EDF Energy, E.ON UK, npower, Scottish Power, and SSE) are complex businesses, with several different arms – generating, trading and supplying energy – that sometimes sell energy and services to other parts of the same company.

This means that when they report their overall profits, they include all these different business arms, making it difficult for the public to determine exactly how much profit has been generated from rising domestic energy bills.

Greater transparency is thus urgently needed to reassure consumers that high energy prices are not fuelling excessive profits, according to the MPs.

The ECC also said that Ofgem is failing consumers by "not taking all possible steps to improve openness and increase competition in the energy market". The MPs criticised the regulator for its "relatively light touch approach" and for not fully implementing the recommendations of the accountants it commissioned in an earlier report to improve how energy companies report their profits.

Financial concern

Which? executive director Richard Lloyd said: "Hard-pressed consumers consistently tell us that the spiralling cost of their energy bills is one of their top financial concerns, with energy companies trusted by fewer than a quarter of their customers.

"People will not feel confident that they are paying a fair price for their energy unless prices are simplified and the costs that make up our energy bills are open, transparent and subject to robust scrutiny.

"The government and regulator must do more to rebuild trust in the suppliers and to keep prices in check. We want the government to introduce simple energy pricing and a clear ring-fence between generation and supply businesses, so consumers can see exactly what they're paying for and be more confident that there is effective competition in the energy market."

Add new comment