IoS investigation: The great British energy rip-off

Three decades after privatisation, monopoly power is still king

The "big six" energy firms were last night accused of maintaining a "stranglehold" over millions of consumers, after new figures showed that they each control more than two-thirds of the market in different regions across the UK.

An average of 70 per cent of households across all regions use the same electricity supplier, with the proportion rising to 85 per cent in some areas, undermining claims by the Government and Ofgem, the regulator, that the energy market is operating competitively.

The figures, uncovered by Labour, are published in the wake of the confusion over the future of energy bills after David Cameron pledged in the Commons to force companies to offer householders the "lowest tariff" – a promise that within hours was exposed as unworkable. The Prime Minister clashed with the Liberal Democrat Energy Secretary, Ed Davey, who backed Ofgem's proposals, published on Friday, for a simplified tariff system that encouraged consumers to switch between firms.

The official figures show that companies supplying electricity to homes where they inherited the network from the former utility boards are operating a near monopoly, making a mockery of the idea that customers routinely switch firms to get better deals.

Separate data from the Department for Energy and Climate Change (DECC) reveals that customers who have stayed with their old electricity supplier are paying more than those who have switched. DECC analysis shows that these "home suppliers" charge an average of £31 a year more than non-home suppliers for electricity – in effect placing a premium on loyalty.

The research emerged on the eve of British Energy Saving Week amid an outcry that energy firms are pushing up fuel bills beyond the rate of inflation, adding between £80 and £112 to the average annual household bill.

Although deregulation of the energy market in the 1980s supposedly led to more competition, the reality is more similar to a monopoly within each region of the UK.

The largest five electricity suppliers dominate the regions they inherited from utility boards more than two decades ago, while British Gas still retains the largest share of the retail gas market nationwide. This is despite consumers being encouraged by price comparison websites to shop around for the cheapest supplier. When the gas and electricity networks were first privatised, price caps were in operation, but a decade ago Ofgem removed controls because competition had, in theory, been established.

Yet figures published in Parliament in a written answer to the shadow Energy Secretary, Caroline Flint, show that there is little real competition. Firms last night claimed the figures show the loyalty of customers they inherited from the boards, but Ms Flint said the companies appear to be exploiting consumers' unwillingness to shop around. With a baffling array of more than 500 tariffs on offer, consumers are often loath to switch.

In Northern Scotland, SSE, the firm that inherited the network from the North of Scotland Hydro Board, has retained an 85 per cent share of the retail electricity market, while in south Wales, SSE has an 82 per cent share and in the Southern region it has an 80 per cent share.

Scottish Power has an 82 per cent share in southern Scotland, and a 73 per cent share in north Wales. EDF has remained dominant in London with a 74 per cent share; in the South-east, it supplies electricity to 73 per cent of homes; and in the South-west, it has 71 per cent.

Npower remains the dominant supplier in the West Midlands, with 65 per cent of the retail market; in Yorkshire, it has a 65 per cent share; and in the North-east, 64 per cent. E.ON has a 69 per cent share in the East Midlands; 68 per cent in the Eastern region; and 67 per cent in the North-west.

The sixth major energy firm, British Gas, has held on to 76 per cent of gas-only accounts across the UK. The figures do not apply to dual fuel accounts, but nearly 10 million households are on electricity only, and 4.6 million have gas only.

Ms Flint said: "It's no wonder the energy giants are shame-faced about hiking up energy bills when they have a stranglehold over the energy market. People talk about the 'big six', but in most parts of the country there's only one big supplier in town. The fact that 70 per cent of people in any region all use the same electricity supplier suggests that the energy market is not functioning properly. It cannot be right that customers who have stuck with their old electricity supplier pay a premium for their loyalty.

"The time has come to create a tough new regulator to police the energy market properly, and force the energy companies to pass on price cuts to the public."

A spokesman for Npower said: "We have a larger than expected share in the West Midlands because our history is in the Midlands. A lot of people were Midlands Electricity Board customers and many of them remained so [under the new name]. The rate of turnover has been quite significant, people have left and people come back. It is about loyalty – many people still refer to us as 'the Midlands Electricity Board' as they refer to British Gas as 'the Gas Board'. They are with us because we are incredibly good value. It is the same in the North-east. We feel very much part of the community in these areas."

A spokesman for E.ON said: "Many of our customers, while staying with us, will have regularly changed products. As such it would be wrong to say they are not engaged in the energy market – they are, and have chosen to stay with us. Some 69 per cent of our customers overall have switched supplier or tariff in the past three years.

"It is important that we treat every customer as an individual and as such being on the right tariff for your own individual circumstances is vital. In recent weeks we have made checking you're on the right tariff easier than ever, and it is this simplicity and comparability that our customers are responding to. By making things simpler and more comparable, as well as continuing to provide help and advice that will make homes more energy efficient, we can really help our customers and ensure they are on the best deal for them."

A Scottish Power spokesman said: "The British energy market is one of the most competitive in Europe, and Scottish Power welcomes anything that encourages or supports this competition."

SSE said in a statement: "We would fully expect our customer retention rates to be higher than those of our competitors because of our exceptional standards of service, for which we are consistently recognised as the best in the business by the likes of Consumer Focus and uSwitch.

"There's no doubt that greater levels of consumer engagement in the market would be a positive thing. However, switching rates in the UK compare very favourably with those in other European energy markets, and with other retail service markets such as fixed and mobile telecommunication, insurance, mortgages and personal current accounts."

How easy is it to reduce your energy bill?

If a seasoned investigator has trouble, what hope for the average consumer? Here’s what I discovered after many frustrating minutes on hold:

Npower

My current provider, Npower, predicts my spend for the next 12 months will be £208.37 for 1,620 kWh of electricity and £531.78 for 11,260 kWh of gas – all helpfully displayed in my latest bill, but irrelevant because it was generated two days before they announced an 8.8 per cent price hike. Sneaky.

British Gas

After an automated apology for any delay due to “a high volume of customer calls” came some advice: “If you’re calling for our fix and fall tarif,f go online to sign up and register your details. If you have received a coupon about this offer, please complete it and return the pre-paid envelope. If you are calling about a fixed contract that ends in either 2013, 2014 or 2015, your prices are not affected by our recent price increase.”

I simply want to find out if you can beat my existing deal.

“Press 1 to change your account name or address or if you are moving house. Press 2 to give us your meter reading or find out your balance, pay your bill or to let us know you are going to pay your bill or you have paid your bill. Press 3 if you have any questions about your central heating or home care or press 4 to talk to one of our team.”

Hooray. Well, nearly. I sit through more suggestions to “go online for further information”. A pause, then a human voice. “You probably were sent that estimate prior to their price rise announcement.” True. “Our best deal is the online variable until November 2013, which includes the price increases taken into effect. We can do a 6 per cent discount from your total bill for direct debit.”

“That will cost you around £229 for electricity and £532 for gas. A little bit more than your estimate, but your prices will go up remember”.

So your prices are fixed, then?

“No, we have another “fix and fall” tariff which is not discounted but is fixed until March 2014. That might make more sense to you.

“If our prices go up, yours won’t do, but if prices go down, yours go down – and you get a fixed premium of 3 per cent.”

“That comes to £253.34 for electricity and £583 for gas.”

£100 more! “Ah, but your charges…”

Yes, yes, they will be going up.

To be fair, she did recommend I call npower to check how much my bill would apparently be going up by. That was easier but it still took 17 minutes.

E.ON (no freephone)

It took less than a minute to speak with someone and we were straight down to business: full address and phone number (“in case you get cut off”) before we were on to the tariffs. Four on offer: standard, E.ON energy discount (“3 per cent cheaper than standard for 12 months but you’re not protected against price rises”), fixed one year or fixed two years. It was like remortgaging a house.,

Standard came to £787.93 and the energy discount was £752.69. Fixed one came to £776.48 – “no premium, mind” – and fixed two £816.39 – “a bit of a gamble as it is 5 per cent above standard unit rate but you’re protected against price rises.”

The good news: E.ON was not among the four of the “big six” energy companies which had recently announced price rises for 2012. The bad: “but it’s more than likely we will put them up for 2013”. Hmmm.

That took four minutes.

EDF

Oh dear. I gave up trying after being on hold for 15 minutes listening to what sounded like Morcheeba. Rubbish.

SSE

After seven minutes on hold, I was mercifully told there were only two tariffs the company provides – standard and capped. My quote was £28 more expensive than npower, but SSE credits your account with £100 when you switch and their rate is capped for two years meaning, like British Gas, it won’t go up, but could come down. And SSE “was the only energy company that reduced their prices last year”. In addition, my gas and electricity standard charge of 16.44 pence per day would come down to 14.8p with paperless billing. “I’m here until 2pm if you want to switch,” a very helpful Eddie told me.

Scottish Power

I had tapped in my numbers to their online quote generator which gave me an estimated bill of £816.57. But on the phone, a quote using the same figures was better: £755. This for a deal fixed until March 2014 without a cancellation fee. Did I want to know the unit price? I certainly did. “Scottish Power’s first quarter electricity unit price is 21.74p for the first 225 units going down to 10.99, compared with Npower’s current unit price of 16.93 reducing to 13.39. Our primary gas units are 8.10 going down to 3.01 with Npower’s at 7.89 reducing to 3.51.” I regretted the request for more detail.

So much to choose from. Do I ditch and switch, fix or stick? I have no idea. I tried calling Npower to see what their updated estimate would be for next year, but their systems were down. I’ll have to call back on Monday.

Paul Gallagher

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