Action on energy prices is another damp squib

As widely predicted, UK government action on energy bills has turned out to be another damp squib. Ministers passed the buck yet again to Ofgem who have published plans for a ‘fairer and more competitive’ market. As if we haven’t heard that before! 

As the Editor of Utility Week put it: “If the government is convinced that an absolute energy price cap for 17 million UK households is both expedient and desirable, it should take responsibility for delivering it – and sooner rather than later. The industry is not going to tie a noose around its own neck.”

Despite the abundance of energy supply in the UK, we still pay more than the European average. This Ofgem infographic shows how energy bills are broken down.

We are told the solution is more switching in an allegedly competitive market. However, there has been a warning that more small energy firms could go bust this winter because of increasing price volatility. David Bird of Co-operative Energy said that the regulator needed to set financial stress tests for new market entrants, to reduce the risk of firms folding and customers being left in the lurch.

On a more positive note it looks as if there may be some action on charges for pre-payment meters. 

Santander has recently highlighted how much of our declining pay packets go on largely unavoidable household bills. It looked at bills for gas, electricity, water, etc – and found they have risen far ahead of average wage rises. Since 2006, average pay packets in Britain have gone up by 19%, while the average gas bill has risen by 73% and electricity by 72%.

These are very large real rises, and all the grimmer for families and pensioners on very tight budgets – not to mention public sector workers suffering years of pay restraint. These are must pay bills that leave families with harsh choices about what to cut elsewhere.

This bitter pill is made all the less easy to swallow when the boss of one of Scotland’s biggest energy companies has been given a 72% pay rise, soon after arguing against consumers having their bills capped to save them £100 a year. The company also increased the price of its standard variable tariff by 6.9%.

Alistair Phillips-Davies, the chief executive of SSE will be paid £2.92m in 2017 after receiving the maximum possible bonuses for leading a “robust performance” by the supplier last year. The pay rise is even bigger than the 40% rise awarded to the chief executive of the Scottish Gas owner, Centrica.

Former energy minister Brian Wilson is not as convinced as the First Minister that ScottishPower is “an exemplar to our world-leading energy sector” as she opened their new HQ in Glasgow. He argues: “Such testimonials should be tested rather than asserted. Neither ScottishPower nor SSE have built a single power station since privatisation. Scotland has been turned from exporter of electricity to importer. These companies have been the biggest beneficiaries of onshore wind subsidies – without building a single turbine in Scotland. I’m not sure that is such an “exemplar” record, even leaving aside what customers think of them.”

Then we can add energy networks into the mix. They have been accused of exploiting consumers to enjoy a £7.5bn windfall of unjustified “sky high” profits.  Citizen’s Advice reckon the companies that transmit electricity and gas around the UK, including National Grid, were reaping average profit margins of 19% from their monopolies. That compares with the 4% margin that big six suppliers make selling power and gas to householders. They have called for a one-off £285 rebate to every household. Don’t hold your breath on this one, but the companies can expect a tougher price controls next time around.

In a useful analysis of the issues the HofC library argues that the key issue for Parliament will be how to make consumer markets such as energy work effectively. Can consumers be encouraged to find the best deal or does Government need to be more active? 

The simple truth is that markets have failed, not least because consumers have better things to do than spend hours battling the complexity of energy pricing. Government intervention is long overdue.