Last week, on St Patrick’s Day, the Competitions and Markets Authority (CMA) published the findings of its two year investigation into the functioning of the energy supply market.
The headline news focused on their recommendation that non-switching energy customers should have their contact details shared with other energy companies to allow them to fight over their business. In fact, this was only one, and a well spun aspect, of the review which made bleak reading for the bigger energy companies, known as the Big 6.
The CMA review highlighted “deficiencies” and identified some solutions which we may see adopted. But in my opinion, there is a deeper seated problem with the whole energy supply market which is divorced from those that it supposedly serves us.
The CMA research found that 34% of domestic customers had never considered switching their energy supply. More than that, those on the default standard variable dual fuel tariff were missing out on average savings of £164 a year. A whopping 70% of BG customers, for example, are on this relatively expensive tariff.
Meanwhile, the major energy suppliers are not passing the savings that they have been realising in the gas and electricity “wholesale” market.
Wholesale energy costs make up around 50% of the cost of our bills, with the remainder comprising the costs to get the energy to us, business running costs and tax - in particular, VAT and “green” taxes like Winter Fuel Allowance for the elderly, contributions to insulation to make houses more energy efficient and contributions to renewable energy schemes. While wholesale gas and electricity costs have come down over the last year each by 33% and 20%, the Big 6 have only reduced their prices by around 5%.
The evidence led to the CMA concluding that potential savings gained by switching from the likes of BG and Npower are increasing rather than decreasing.
This suggests that the Big 6 are becoming less competitive compared to newer energy retailers.
The review also questions the value of last year’s political intervention into the energy market when the companies were compelled to reduce to four the number of tariffs offered to domestic customers. The idea behind this was to simplify the offers to help customers to switch supplier. This particular change to tariffs is considered by the CMA to have failed to influence the level of switching.
As for those on the most expensive tariffs, charged through pre-payment meters, the deal is raw to say the least. The CMA say that the traditional energy suppliers are disinterested in pre-payment customers and are “disinclined” to compete for their custom especially those who have outstanding debt or a poor credit history.
This is leading to pre-payment customers not only paying the highest tariffs, they have less choice in the market and less opportunity to use cheaper payment methods available to the rest of the market.
And when it comes to quality, the incumbents are letting us down compared to newer entrants.
The CMA found that smaller energy companies achieve consistently higher customer quality scores while for the Big 6 customer complaints are on the up.
So why do we stick with these dinosaurs when the CMA, and other evidence, clearly suggest that they over-charge and under-perform? There is no need to put up with this.
Don’t think about switching – do it.
-- Peter Gudde is environment manager for Forest Heath and St Edmundsbury councils