Energy companies are "greedy" and have ripped off consumers by
overcharging them and making their bills too complicated to
understand, the industry regulator has ruled.
Bills have gone up too quickly when wholesale energy prices have
increased, and fallen too slowly when wholesale prices have
declined, according to a "damning" report into the big six energy
Also, customers' bills have become bewilderingly complex, making it
impossible for many consumers to estimate if they are getting a fair
deal or not.
Ofgem, the industry regulator, has ruled that customers have
suffered from a "profound loss of confidence and trust" in their
suppliers, which too often have been "greedy" about pushing up their
bills to boost their profit margins.
It has given the companies a final warning about increasing
customers bills and been ordered to undertake two major changes to
make the market fairer.
First, bills must be made radically simpler in order for households
to work out if makes financial sense for them to switch to a
different supplier. Second, the suppliers, which also own power
stations, will be forced to sell off 20 per cent of their
electricity in order to encourage new entrants into the market.
If they fail to undertake these reforms Ofgem said it would refer
the companies to the Competition Commission, a move which could see
the companies fined.
Most critics of energy companies, as well as the industry itself,
said they welcomed the proposed changes, but queried whether Ofgem's
tough-sounding words would actually translate into lower bills for
Louise Hanson, head of advocacy at Which?, the consumer watchdog,
said: “This isn’t the first Ofgem investigation to show that the
energy market is failing consumers. Unless the regulator takes
decisive steps to clean up the sector, it won’t be the last.
“Confusing bills, a bamboozling array of tariffs and questionable
sales and marketing practices are not features of a market that
works well for consumers.
“Making tariffs easier to understand and compare is a step in the
right direction and should encourage switching and improve
competition, but without price guarantees, people could find the
price they end up paying isn’t the one they signed up for.”
Currently there are about 300 different gas and electricity packages
on offer, up from 180 in 2008. And most bills are structured so that
the first portion of energy used is priced differently from the rest
of the energy used.
Ofgem wants all companies to price their bills in a simple per-unit
way, allowing people to make an easy comparison between different
Alistair Buchanan, the chief executive of Ofgem, said the regulator
had found evidence as recently as this winter of companies pushing
up their bills too quickly when wholesale prices went up, "getting
greedy and giving themselves a little bit extra in terms of profit".
Late last year Ofgem said that energy supplier's net profit margin
per typical customer rose from £65 in September to £90 in November,
a 38 per cent rise.
Christine McGourty, director of Energy UK, which represents the
major suppliers, said Britain has one of the most competitive energy
markets in the world, with about 100,000 customers switching
suppliers every week.
"But some people have never switched, so any appropriate measures to
engage those customers better in Britain's competitive energy market
will be welcome," she said.
Energy experts said they were hopeful that forcing companies to sell
off a portion of the energy they created would help small
competitors enter the market, many of whom are now unable to buy
David Hunter, an energy analyst from consultancy M&C Energy Group
said: "Only today we see yet another example of how the smaller
energy companies are being squeezed out of the market.
"The official opening of a new gas-fired plant at Langage, Plymouth,
is the first major new power station in the UK for five years.
"Yet, it is owned by Centrica and all gas generated will go direct
to the company's retail arm, British Gas, under a 'tolling
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