Energy Guides

Will Ofgem force energy companies to lower their prices?

Thursday 24 March, 2011

By Martin Fagan - editorial@consumerchoices.co.uk

Ofgem has slapped down the “big six” energy suppliers for bamboozling the public. But what does this mean for those facing huge bills? And how can you make sure you’re not ripped-off?

If you’re one of the millions of Brits worried about soaring fuel bills, then the accusation by energy regulator Ofgem that the “big six” energy companies are “lining their pockets” and “bamboozling” customers is long overdue.

The coldest winter for 100 years has left many of us with big bills and the energy companies with big profits.

Ofgem says the Big Six - EDF Energy, Npower, British Gas, E.ON, Scottish and Southern Energy, and Scottish Power - have a powerful stranglehold on the UK’s domestic energy market.

The watchdog is seeking to loosen this grip by opening up the market and allow smaller firms, such as Ovo Energy and First Utility to sell a fifth of the gas and electricity produced by the “big six”.

But this doesn’t necessarily mean smaller bills for you. The energy industry is being forced by the government to pay £200billion to invest in new sustainable energy supplies, and they won’t be funding this from their vast profits: they’ll simply hike your bills accordingly.

Recent research from YouGov reveals almost five million households (19%) are currently in debt to energy suppliers and they collectively owe £624million.

Top five ways that energy companies rip you off:

1. Too many tariffs: In 2008, Ofgem found there were 180 separate tariffs available to consumers; by 2011, there were more than 300 and this has “bamboozled” customers. This complexity works in the suppliers’ favour because it’s harder for you to compare energy prices across the the board and get the best deal.
2. Raise prices quicker than lower them: Oil and wholesale gas prices fluctuate daily on the global markets and when both commodities spiked in price in the middle of 2008, UK energy suppliers immediately hiked customers’ bills. In 2009, wholesale gas prices fell by 60% but your gas bill didn’t.
3. Being downright shifty: Ofgem is concerned the ”big six” fail to provide accurate figures on what they pay for power in the wholesale markets and so stealthily inflate their profits at the customer’s expense. Ofgem has called in an independent accountancy firm to forensically examine their accounts and report back.
4. Stranglehold on electricity market: The Big Six run a large number of power stations which allows them to dominate the generation of electricity. To break this grip, Ofgem says it will force them to auction up to 20% of this power to smaller energy companies to introduce competition to the market.
5. Taking massive profits: Following the harsh winter, in February Centrica (which owns British Gas) announced a 30% surge in profits to a record £2.4billion. Ofgem said energy supplier's net profit margin per typical customer rose from £65 in September 2010 to £90 in November 2010, a 38% rise.

Ofgem may be the watchdog for the energy industry, but its powers of enforcement are limited and it can only propose reforms and hope the energy industry adopts them.

This time it’s different: if the ”big six” fail to comply with or frustrate reforms, Ofgem says it will refer them to the Competition Commission which has the power to compel the Big Six to change their ways.

So how can you, the consumer, get your own back and pay less for your energy?

• Swap to a dual fuel deal. The “big six” make higher margins from customers who take only electricity or gas than those who take “dual fuel”. Not only should switching lower your bills, but it also helps cut the power company’s profits.
• Get a smart meter. These devices allow consumers to see how much energy they’re using. Fitting the meters is the responsibility of the energy company and the government wants all households to have a smart meter by 2020. Contact your energy supplier to see if they’re rolling out smart meters in your area.
• Switch to a cheaper deal. Despite the bewildering array of tariffs you have to battle through, it’s always a good idea to gather your last few bills and compare online energy deals.

Ofgem has made it compulsory for all energy companies to supply customers with an Annual Energy Statement, which includes advice on switching. Even though power companies have until 30 June, 2011 to provide households with their first annual statement, according to comparison service uSwitch.com, only 37% of households have actually received one so far.