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
iJobs Job Widget
iJobs General

Financial Technical Consultant (C++, C#, Finance, MSc, PhD)

£50000 per annum: Harrington Starr: Financial Technical Consultant (C++, C#, F...

Year 3 Teacher

Negotiable: Randstad Education Plymouth: Year 3 Teacher Required We are curr...

Year 5 Teacher

Negotiable: Randstad Education Plymouth: Year 5 Primary Teaching positionRands...

C# Algo-Developer (BDD/TDD, ASP.NET, JavaScript, RX)

£45000 - £69999 per annum + Benefits + Bonus: Harrington Starr: C# Algo-Develo...

Day In a Page

Read Next
 

The power of anonymity lies in the freedom it grants

Boyd Tonkin
Rebel fighters walk in front of damaged buildings in Karam al-Jabal neighbourhood of Aleppo on August 26, 2014.  

The Isis threat must be confronted with clarity and determination

Ed Miliband
Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone