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

English Teacher

£110 - £130 per day: Randstad Education Preston: The Job ? This is a new post...

Primary Teacher EYFS, KS1 and KS2

£85 - £130 per day: Randstad Education Preston: Randstad Education are urgentl...

Teacher

£85 - £140 per day: Randstad Education Preston: Rapidly developing and growing...

KS2 Teacher

£105 - £120 per day + Expenses: Randstad Education Maidstone: Randstad Educat...

Day In a Page

Read Next
 

The EU must take more responsibility for the migrants risking their lives to reach Italy

Benjamin Ward
The view from Arthur's Seat, Edinburgh  

Scottish independence: Why I can't wait to leave London and live in a free, independent Scotland

Yannis Baboulias
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week