Adam Scorer: Customers pay price for flawed market

Director of Campaigns, Energywatch
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If, as predicted, Centrica announces spectacular results this morning, British Gas customers are going to blow a fuse. And who could blame them?

After the briefest respite, energy bills are skyrocketing again. Just one month after British Gas increased energy bills by 15 per cent it is poised to announce massively increased profits.

Centrica will no doubt point to poor second half results for its British Gas Residential business, the need to protect itself against volatile wholesale gas prices and the need to invest in renewable energy.

These explanations will have a hollow ring to them.

The fact is that Britain's energy companies are falling further behind European countries in renewable energy and Centrica will be making good money as a gas wholesaler even if it struggles as a retailer.

The only sympathy Centrica can expect is that it is forced to run the gauntlet of consumer anger while other British energy suppliers can hide their profits behind their European parent companies.

The problem rests with the way the energy market has mutated from one driven by competitive pressures, to one that is insulated from competition and able to pass on increased costs with impunity.

That is coming under increasing scrutiny. The state of the energy market has become a political and economic priority.

Latest estimates put 4.5 million UK households in fuel poverty; spending more than 10 per cent of their income on gas and electricity. For many years the imperative to consumers has been to switch supplier. But in the most contested part of the market place – the average direct debit, dual fuel customer – only £13 separates the offers from the five companies which have raised prices so far. An average consumer switching from one such deal to another stands to save 25p a week.

The cause of the problem is that a young competitive market has lost its vigour. In all, 20 active suppliers have reduced to six companies.

These big six energy companies are both producers or generators and retailers. That means they make money when the wholesale price is high and they make money when the wholesale price is low. It is nigh on impossible for a newcomer to break into the market.

The main focus of Ofgem is on the monopoly network industries; setting price controls and ensuring the pipes and wires side of energy is fit for purpose. But the regulatory system in Britain is not just about the sector regulator. The Competition Commission is the specialist body able to bring forensic scrutiny to bear on markets which are failing consumers. It has just reported on supermarkets. It lies desperately underused in the energy sector.