Consuming Issues: It would pay to take more interest in our energy bills
Saturday 17 April 2010
Energy is boring, isn't it? And when topics are dull, people tend to pay less interest and consequently, the opportunity arises for firms to offer them poor value or even to rip them off. Put simply, generally householders show little interest in energy and, so generally, receive poor service and high prices.
This First Rule of Consumer Boredom applies to personal finance, and explains why it has experienced so many scandals in the past 20 years, such as personal pensions, endowment mortgages, current account penalty fees and payment protection insurance.
While individuals have only themselves to blame for not taking a closer interest in their finances, government and regulators have no excuse for letting companies run rings round them because, unlike householders, it's their professional responsibility to look after our well-being.
Alas, politicians and regulators are still doing a bad job on energy (personal finance next week). Six months ago The Independent launched its campaign against the Great Energy Rip-Off, asserting that energy bills were too high because suppliers were failing to pass on steep falls in wholesale prices.
We pointed out that although wholesale prices had halved in a year, from 85p to 35p per therm for gas, and from £90 to £40 per megawatt hour for electricity, direct debit bills – which had risen by £382 the previous year – had fallen by only 4 per cent to £1,141.
So we urged people to look for cheaper internet deals, suppliers to cut bills by 10 per cent and for the regulator to ensure that retail prices followed wholesale prices more closely, to prevent profiteering. The campaign is thought to have prompted thousands of people switching to cheaper suppliers and raised the heat on the Big Six – British Gas, E.ON, EDF Energy, Npower, Scottish & Southern and ScottishPower. On 18 November, the Energy Secretary, Ed Miliband, demanded they cut bills over the winter.
In this, the campaign was successful, but overall, it must be admitted, it failed. Despite Mr Miliband's stern words, the companies flagrantly delayed cutting bills until almost at the end of peak winter demand, despite receiving even more money than expected from January's cold snap. British Gas cut first, on 5 February, knocking 7 per cent off gas, and Spanish-owned Scottish Power was the last to follow, cutting gas by 8 per cent from 31 March. (It is worth noting that the four foreign-owned energy suppliers E.ON, EDF Energy, Npower and ScottishPower generally charge more than the two British-owned companies).
As a result of these high prices and snowy weather, winter energy bills rose to a record £532.70 between January and March, it was estimated this week. Mark Todd, director of Energyhelpline.com, which calculated the figure, warned customers: "In a privatised energy market, there is little governments can do, and they need to be honest and tell people that the only way to reduce their bills is by taking personal responsibility to find the best deals."
Perhaps the answer to that would be for politicians to change the way the market works. Alas, the publication of this week's general election manifestos suggests that the biggest players in the £25bn-odd-a-year home energy supply business need not hire any new lobbyists. If anything, the will to act seems to have faded.
Labour's manifesto says it would "ensure greater competition in the energy supply market," but declines to specify how this would be achieved. The Liberal Democrats would end the environmentally absurd practice of charging more for the first units of power used in the home, and raise protection for rural homes that are off the gas grid. The Tories would reform the regulator Ofgem and ensure that a supplier's cheapest tariff is stated on bills. But, disappointingly, the Conservatives have omitted their previous strident (and welcome) commitment to refer the industry to the Competition Commission for an investigation.
Energy is dull, but it matters, to everyone paying £100 or so a month – one of the biggest chunks of consumer expenditure – and especially to those who cannot afford rising prices and end up going hungry or shivering.
In one of the last reports of Parliament's last session, the Energy and Climate Change Select Committee noted the Government was likely to miss its own targets on fuel poverty. Ministers had aimed to end fuel poverty in England among households containing the elderly, disabled or children this year – and entirely by 2016, but the cross-party committee concluded: "The first target is going to be missed and the second looks difficult to hit."
Derek Lickorish, chairman of the Fuel Poverty Action Group, told the MPs that suppliers had done little to identify those most in need of help. According to their report, Mr Lickorish had "argued that energy companies spend huge sums and engage some of the best brains to develop sophisticated demographic modelling and to target customers effectively, and that that skill could be coupled with information about people's incomes to target effectively the fuel poor.
"However he noted that work on data sharing began in 2005 and that 'it has taken us five years to get this far, which is unforgivable'."
Perhaps if we took more interest...
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