Leading article: Energy market is not working in the interests of customers

Movements in the wholesale price of energy only get passed on to customers when they rise

Share
Related Topics

The great energy rip-off continues. British Gas customers recently discovered that their gas bills will rise by 18 per cent and their electricity bills by 16 per cent from next month. Yet Centrica, the parent company of British Gas, yesterday announced that its dividend to shareholders will increase by 12 per cent. And the group's chief executive expects profits for the year as a whole will rise. It is small wonder that customers are furious.

When the UK energy market was liberalised in 1998, it was argued that competition between separate providers would keep down prices and also force firms to improve their customer service. Neither has been delivered. Prices have been an upwards ratchet. British Gas argues that it has no choice but to increase its domestic fuel prices next month because the wholesale price it pays for gas and oil itself has shot up. The same argument is made by the other "big six" energy firms, who have also increased their domestic prices sharply. Yet movements in the wholesale price of energy only seem to get passed on to customers when they rise. When the wholesale price fell three years ago, domestic bills did not budge. Heads – the energy companies win, tails – the customer loses.

General customer service has been terrible too. A report from the Commons Energy Committee this week accused energy companies of using "Del Boy sales tricks" to pressure customers to switch to more expensive contracts. And British Gas has just been fined £2.5m by the industry regulator Ofgem for failing to deal with customer complaints properly.

What we have here is a clear picture of market failure. The sector is dominated by firms that are "vertically integrated", which means that they both produce energy and sell it to customers. The fact that they can make fat profits at both ends of the supply chain means that the pressure on them to compete for share in the domestic market is drastically reduced. There are also simply too few firms for competitive forces to drive down prices. It was a grave mistake for the regulatory authorities to allow such a level of consolidation to take place. The advantages of vertical integration also mean there are large barriers to entry for potential new players.

Customers have also been let down by a weak regulator, in Ofgem, which has allowed the energy firms to get away with hopelessly confusing tariff pricing structures and behaviour towards poorer customers (in the form of pre-payment meter rates) that has bordered on the exploitative.

In theory, there is nothing wrong with private energy firms making large profits. Profits can be an indication of efficiency. And those revenues can be reinvested in new infrastructure, which should ultimately benefit the consumer. Yet profits that arise from the gouging of customers are simply unacceptable.

The solution is radical action to increase the number of players in the market. The Competition Commission should be asked to review the functioning of the sector without delay. And the Government should be prepared to break up the big six if that is what the commission recommends. We also need a tougher system of regulation, one that will force this market, at long last, to start working in the interests of customers, rather than producers.

React Now

Latest stories from i100
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Recruitment Genius: Interactive / Mobile Developer

£40000 - £45000 per annum: Recruitment Genius: This digital production agency ...

Recruitment Genius: PHP Developer - Midweight

£40000 - £45000 per annum: Recruitment Genius: This digital production agency ...

Recruitment Genius: Junior Front End Developer

£20000 - £30000 per annum: Recruitment Genius: This digital production agency ...

Recruitment Genius: Front End Developer - Midweight / Senior

£35000 - £40000 per annum: Recruitment Genius: This digital production agency ...

Day In a Page

Read Next
The UCAS clearing house call centre in Cheltenham, England  

Ucas should share its data on students from poor backgrounds so we can get a clearer picture of social mobility

Conor Ryan
A study of 16 young women performing light office work showed that they were at risk of being over-chilled by air conditioning in summer  

It's not just air conditioning that's guilty of camouflage sexism

Mollie Goodfellow
Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks