After a year of price increases, Ofgem and the government seem determined to tackle unfair energy pricing. But will they really make a difference?
There's little doubt that 2008 has been a dreary year for Britain's energy customers. The average household's annual gas and electricity bill has rocketed by around 40% since January -- so it now stands at more than £1,200.
What's more, the shocking price hikes imposed by suppliers this summer have pushed an alarming number of people into fuel poverty (i.e. more than 10% of that person's annual household income is spent on energy bills). Consumer Focus, the new energy watchdog, suggests that around 5 million households are currently in this situation.
In addition, as I reported back in October, Ofgem has highlighted a number of unfair billing methods being used by energy companies to plump up their profits:
- Households that get their electricity from a company which was formerly the key supplier in their area are likely to pay around 10% more than new customers who live elsewhere.
- `Medium' gas and electricity users with pre-payment meters (PPMs) pay an average of £125 more per year for their fuel than those who pay by direct debit.
- `Medium use' customers who pay their energy bills quarterly in arrears (by `standard credit') pay £80 more per year than those who use direct debit.
Predictably, these problems have hit Britain's most vulnerable consumers hardest -- such as those on low incomes and the elderly.
A brighter future
However, it could be that the start of a new year will also be the start of a fairer deal for all of us on energy.
Britain's `Big Six' suppliers -- British Gas, NPower, E.ON, EDF, Scottish Power and Scottish and Southern Energy -- have now accepted Ofgem's finding that "many disadvantaged households are paying unfair prices". As such, they have agreed to address the issues identified by the regulator.
New information released this week shows that, since Ofgem's energy probe began in February, around £300 million has been shaved off the excessive premiums paid by PPM users. This has gone some way to making the bills of these customers fairer.
Further cuts of around £200 million are expected to be made from the bills of households who have no access to gas, and those who miss out on the best deals for other reasons.
In addition, there are hopes that everyone's energy costs will fall in early 2009 because the price of oil -- blamed for this summer's steep price increases -- has now plummeted. Many MPs have expressed serious concern that drops in the wholesale price of gas and electricity have not been passed on to consumers, and the Big Six are under increasing pressure to act from Energy Secretary Ed Miliband.
Left out in the cold
I hate to be pessimistic -- especially at this time of year! But in my opinion, Britain's energy suppliers still fall a long way short of offering customers a fair deal.
Ofgem has stated that the £200 million worth of price cuts yet to be delivered by the Big Six are taking too long to pass on. In fact, the regulator is so concerned about the pace of reform that it may refer the companies to the Competition Commission in January, and is now moving to make unfair billing illegal.
Ed Miliband has expressed his support for a change in the way energy suppliers are licensed -- a move that could ban companies from charging "unjustified" prices for gas and electricity. However, such a drastic measure is unlikely to be implemented immediately. This means that, in the meantime, some of us are will continue to be short-changed by our energy suppliers.
Furthermore, I think the hope that hefty price cuts are on the horizon for energy customers could be disappointed. As I explained in this article, energy suppliers have made it clear that a sustained decrease in the cost of gas and electricity will be required before consumers can feel any benefit -- and as always, companies continue to insist there's a significant `time lag' between them buying energy and us using it, which justifies their reluctance to pass on the savings they seem to be making.
Hope on the horizon?
But perhaps there is new hope on the horizon. The government has now strongly stated that it is prepared to take legal action if energy suppliers fail to treat customers fairly.
Sadly, I think it could come to this -- and if it does, the political storm that could ensue is bound to slow progress.
While Ofgem says there is no evidence of the Big Six suppliers acting as a cartel, I believe their herd mentality prevents effective competition and severely limits consumer choice. In turn, this means the prices we pay are not as fair as they should be. Thus, in my view, a sweeping reform of the whole energy industry is needed in order to guarantee consumers a fair treatment. Who knows whether the government will be brave enough to force such fundamental change through.
Regularly reviewing how much you pay for your energy -- and switching to the supplier that offers you the best deal -- is, for now, the most effective way to ensure you aren't paying over the odds to heat and light your home this winter.
In my view, it's clear that our energy suppliers won't offer us lower prices and better service unless they're forced to. So until that day comes, the best thing we can all do is protect ourselves from over-pricing, bad billing and dodgy deals!
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