The Big Six are in the firing line today as the Competition and Markets Authority released their initial results of a year-long examination of the UK energy market.
It transpires that UK households have collectively overpaid by £1.2bn a year for their energy due to average domestic prices being offered by the ‘big six’ energy suppliers sitting at about 5 per cent “above the competitive level” during 2009 to 2013.
Businesses were hit too with SMEs paying around £500m more on an annual basis “than would have been the case had competition functioned more effectively.”
Before a witch hunt is started, it’s wise to listen to the chairman of the CMA investigation himself, Roger Witcomb.
“There are millions of customers paying too much for their energy bills — but they don’t have to.”
You’ve hit the nail on the head, Roger. Consumers can hop up and down about supplier pricing but no one forced them to stay with their supplier and pay over the odds. The option to switch provider has always been present, yet 34% of consumers hadn’t even entertained the idea.
“Widespread consumer disengagement is impeding the proper functioning of the market. Lack of awareness of what deals are available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers all deter switching — and the higher price levels reflect that suppliers can charge higher prices to these disengaged customers,” the CMA said.
So how do we fix the issue?
The CMA have come up with a host of solutions, the main one being a price cap on the most expensive tariffs. Such a tariff would be intended as a safeguard for disengaged households and very small businesses who fail to respond to prompts that they switch, with the maximum price level for default tariffs set by the CMA or Ofgem.
Can’t say we’re on board with this idea ourselves. Surely we should be educating consumers on the energy market and how best to get a deal not limiting the amount they get ripped off because they can’t be bothered to switch!
Another of the ideas was to reform the four-tariff rule as it’s been advised that such a small number of tariffs hinder price competition and limits discounting.
Criticism came again, this time towards the government’s Electricity Market Reform programme, saying that the allocation process for contracts for difference (CfDs) remained unnecessarily opaque, and that the award of low-carbon subsidies outside the competitive CfD process had driven up costs to consumers.
All in all, the CMA lay most of the blame on a lack of transparency from suppliers and a general apathy amongst customers.
We believe it really is down to the consumer to take the deals out there and stop blaming suppliers.
While electricity prices had risen by about 75 per cent and gas prices by about 125 per cent in the last 10 years, much of the recent increases were down to increased environmental and related network investment costs.
So not the suppliers robbing us after all then?!
Peter Atherton, energy analyst at Jefferies, said the findings had killed “political myths that have grown up around the sector in recent years.”
Well that’s a relief. We don’t want a further proposed price freeze from the newly Miliband-free Labour party. Let’s hope his replacement is better educated.
For advice on how to cut your business energy costs, call 0800 051 5770.