Customers are to blame for energy misery says watchdog

7 July 2015
There is weak competition in the domestic energy market but customers are largely to blame, an official investigation has found. Specific customer failings include a lack of awareness and interest in switching and confusion surrounding how much energy they expect to use versus what they actually consume. The investigation – by the Competition and Markets Authority (CMA) – also found that weak competition between 2009 and 2013 had led to consumers being overcharged by around 5% and small businesses by 14%. This meant the Big Six energy companies raked in an extra £1.2 billion more from domestic customers on an annual basis than would have been the case had competition functioned more effectively. The CMA found that some 36% of energy customers did not think it was possible (or did not know if it was possible) to change their energy tariff, payment method or supplier, according to the CMA, which has been investigating the energy market. Meanwhile, 72% said they had never switched tariff with an existing supplier, did not know it was possible, or did not know if they had done so. This is despite the fact that switching to a better deal could save dual fuel customers of the Big Six energy firms 14% of the average bill – or £160 a year.Compare energy prices and switch provider Default tariffsBetween 2011 and 2014, the Big Six made 10% and 13% more money from their standard variable electricity and gas tariffs than their cheapest deals. However about 70% of customers are currently on the 'default' standard variable tariff (SVT) despite the presence of the cheaper fixed-rate deals. These factors mean a high proportion of customers are less likely to be 'engaged' with their energy supplier – particularly the elderly, those living in social and rented housing, on low incomes or with low levels of education. This lack of engagement – which the CMA refers to as "weak customer response" in its report – gives suppliers "the ability to exploit such a position… through price discrimination by pricing their standard variable tariffs (SVTs) materially above a level that can be justified by cost differences". Despite criticism of customers' lack of engagement, one remedy the CMA is consulting on implies the energy regulator may have made things worse for them. It will now consult on scrapping Ofgem's recent rule change that limited the number of tariffs suppliers could offer to four. While this was meant to make things simpler for customers, the CMA report said that allowing suppliers to have as many tariffs as they wish would give them the incentive to tailor deals and "compete vigorously" for disengaged customers. Other measures to improve customer engagement and so boost competition among suppliers the CMA will also consider include promoting the benefits of smart meters to make billing easier to understand and encouraging consumers to shop around. It will also consult on whether a transitional price cap on the most expensive tariffs is needed "until other measures have led to a more competitive market". The CMA has ruled out capping prices and forcing suppliers to inform customers of the cheapest deal on the market across all other providers. New frameworkGillian Guy, chief executive of Citizens Advice, said: "The energy market has failed the overwhelming majority of customers. Consumers don't trust the relationship between prices and profits. Millions are locked out of the benefits of the competition that exists. "The CMA needs to provide a framework that gives customers confidence that they are not getting a raw deal and protects the interests of all consumers, including those who cannot or do not switch." She added: "The remedies recommended by the CMA are encouraging but will take some time before they are finally agreed and implemented. In the meantime, we call on energy companies – who are benefiting from massive reductions in wholesale prices – to help customers and reduce bills."

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