Ian Marlee: Erosion of consumer trust in energy market
Friday 17 February 2012
The challenge facing Britain's energy market has probably never been greater than it is today. Public confidence in the Big Six suppliers has fallen to extremely low levels as reflected in The Independent's Fair Energy campaign. Poor supplier behaviour and the complexity of the energy market have contributed to an erosion of consumer trust.
Yet - as Ofgem's look at energy security Project Discovery, showed - Britain is looking to the energy industry to deliver up to £200 billion investment in cleaner power generation, networks and energy infrastructure between now and 2020. Over that period bills will need to rise to pay for this investment on top of increases in the price of gas which have been behind the doubling of energy prices since 2005 when Britain lost its self-sufficiency in gas. So consumers are right to ask whether the market structure is right and whether re-regulation of retail prices is the answer.
Ofgem's mandate is set by Parliament with a focus on making competition work to protect consumers. Crucially - a return to price caps doesn't necessarily mean bills will fall. A comparison with the continent, where energy prices tend to be more strongly regulated and attract higher taxes, shows that Britain has some of the lowest household energy prices.
But the market is not working as well as it should. Our Retail Market Review last March showed that suppliers had failed consumers by not fully embracing our previous reforms in 2008 and that competition was being stifled by a combination of tariff complexity, poor supplier behaviour and lack of transparency. We are determined to put a stop to this and have put forward the most sweeping set of reforms since liberalisation began to create a simpler, clearer and more competitive market.
Our proposals for simpler tariffs, more transparent bills and information, compulsory standards of conduct and proposals to open up the wholesale electricity market were not popular with large suppliers when we announced them. However, over the last six months we have seen an encouraging shift in the position of many of the Big Six suppliers.
There is now a recognition that they need to radically change the way they treat consumers and that the current complexity must be swept away to create a more competitive market. We want energy suppliers not only to embrace our reform programme, but to be more responsive to their consumers. It should not need the regulator to step in and ensure companies treat their consumers fairly. In a fully competitive market suppliers should be competing to win consumers over with good service and keen prices.
If the industry grasps the opportunity our reforms offer it can start to restore consumer trust in energy suppliers. This is vital if consumers are going to be asked to pay for the investment Britain needs.
Until then Ofgem will continue to force the pace of change by taking a tough stance on enforcement and by driving forward changes to increase the competitive pressure on all energy suppliers. We believe a market where competition works offers the best guarantee that consumers pay no more than they have to for their energy.
* Ian Marlee is one of Ofgem's senior officials.
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