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Regulator Should Set Energy Prices

Wednesday, February 18, 2015

CMA Should Enable Regulator To Set Energy Prices For Mass Of Customers Who Do Not Switch Suppliers Says GMB

Mass switching cannot be contemplated without smart metering and the government's dithering means that programme is running away behind says GMB.

GMB, the union for workers in the energy sector, commented on the Competition and Markets Authority (CMA) material on competition in the retail energy market. See notes to editors for copy from Press Association dated 18th February on the story.

Gary Smith, GMB National Secretary for energy, said "CMA should grasp the nettle and enable the regulator set the price for the bulk of customers who do not switch. That is the simple way of stopping customers being ripped off.

GMB is very concerned that instead of doing this the CMA could trigger a race to the bottom on employment in the UK. Companies should not be penalised for doing the right thing, like investing in apprenticeships, call centres based onshore and in other jobs. If the CMA deem a business model that depend on outsourced and offshore call centres to be more efficient, it could trigger thousands of job losses in the UK and ultimately consumers will suffer. GMB will resist any race to the bottom and we pledge to defend jobs in the UK energy sector.

The energy sector is in the middle of a full blown crisis and the government is fiddling whilst British industry is losing competitiveness, jobs are haemorrhaging , investment isn't happening and the lights are dimming. We need a strategic plan for energy and an honest debate about where we are going to get our energy from in future. The myth of the energy market is now a busted flush. We need an urgent meeting involving government, industry and GMB to start the real debate on the action we need to take on energy.

In any event one cannot even contemplate mass switching required for a market without smart metering and the government's dithering means that programme is running away behind."


Contact: Gary Smith 07710 618 909 or 0207 391 6700 or Eamon Large 07918 777097 GMB press office 07974 251 823 or 07921 289880

Notes to editors

Copy on story from Press Association dated 18th February 2015

Energy customers 'pay too much'

By John-Paul Ford Rojas, Press Association City Staff

Customers of the Big Six energy suppliers are paying up to £234 a year too much in gas and electricity bills, a competition probe has found.

The Competition and Markets Authority (CMA) said 95% of dual fuel customers could have saved by switching tariff or supplier.

It said the average saving available to these customers was between £158 and £234 a year depending on the supplier.

The findings were the latest update from the CMA's full-scale probe into the sector which is dominated by the Big Six firms - Centrica, SSE, npower, EDF, Scottish Power and E.ON.

It has updated a statement it published at an earlier stage of the investigation in July last year. The CMA said it had not yet reached any conclusions. Provisional findings will be published in May.

The probe also highlighted how customers stuck on more expensive, standard types of tariff tended to be less educated, less well-off, less likely to own their own home or have internet access and more likely to be disabled or a single parent.

These customers were more likely to be with an "ex-incumbent" supplier - the gas or electricity provider that served the area before the market was opened up to competition in the 1990s.

They tended "to think switching is a hassle, that there are no real differences between suppliers and that something may go wrong if they switch".

But the CMA found that from 2011 to 2014, the Big Six suppliers made 12% more per unit for electricity and 13% for gas from those on these standard variable tariffs (SVTs) than customers on fixed or other deals.

It said the next stage of its investigation would focus on understanding which customers do not switch and why, and identifying the nature of "barriers to switching".

Half of customers surveyed said they had never switched, and around a third said they had never considered switching or thought it was impossible.

Those in the latter category tended to include people aged 65 and over, those in social accommodation, customers with no qualifications and those on lower incomes.

The report said the sector was in the midst of regulatory changes and political uncertainty while facing a lack of trust from customers.

It acknowledged "broad public concerns" over rising prices, energy firm profits and poor standards of public service.

From 2009 to 2013, average prices for domestic customers rose "significantly", the report found, with electricity up 24% and gas up 27%. Underlying profit margins in this sector were 4.4% and 2.1% for electricity.

But the overall figures masked "considerable variation in the profits and average prices associated with different types of tariff offered to domestic customers".

The CMA said: "The evidence we have seen to date suggests that over the last three years the gross margins that the six large energy firms earn are higher for customers on the SVT than for those from non-standard tariffs.

"Some suppliers have stated that the costs to serve SVT customers are higher than for customers on non-standard tariffs, and we will wish to investigate this further."

Meanwhile it said that information supplied by the Big Six firms showed the number of recorded complaints had increased fivefold from 2007 to 2013, mainly from problems related to billing, customer services and payments.

Other pieces of evidence suggested "that the customer service provided by the six large energy firms may be relatively poor".

The CMA played down concerns about the way some of the big firms also produce power, saying it had not found evidence that they had earned "excessive profits" from their generation business.

The report also considered the "incumbency" of suppliers since the monopoly of British Gas ended in 1996 and the liberalisation of the electricity market in 1999 - previously controlled by 14 regional boards.

It found about 40% of British Gas's domestic gas customers had been served by it for more than 10 years.

In electricity, 40-50% of domestic customers of incumbent suppliers within each region had been with their supplier for 10 years or more.

However independent suppliers offering cheaper fixed rate tariffs had grown to 7% of the electricity market and 8% for gas, when both had a 1% share in 2011.

Meanwhile, the effect of the way the gas and electricity market is regulated will also come under scrutiny as the CMA continues its probe.

It said: "We have identified several elements of the regulatory regime that may have a potential impact on competition between suppliers to serve customers, and which we intend to investigate further."

Energy Secretary Ed Davey said he would not flinch from breaking up the Big Six companies if the evidence from the CMA was strong enough to suggest market intervention as the next step.

The Liberal Democrat minister also said the energy companies were treating loyal customers "unfairly" by not offering the cheapest deals.

He told BBC Radio 4's Today programme: "If the evidence from the CMA is strong that the next step ought to be breaking up a company, if the Competition and Markets Authority recommend that... we would not flinch from taking that tough action."

Mr Davey added in a statement: "My message for consumers is the same as these early findings - don't stick with a supplier if you're not satisfied - now's the time to shop around for a better deal, switch suppliers and save."

Shadow energy secretary Caroline Flint said: "This report confirms that Britain's energy market is broken and that radical action is needed to protect consumers.

"Energy bills are £300 a year higher under the Tories, and David Cameron has let the energy companies get away with overcharging millions of consumers."

Labour is pledging to freeze energy prices until 2017 if it wins the next election.

Ms Flint told BBC Radio 4's Today programme: "I think the report from the CMA today vindicates what we have been saying for the last three and a half years.

"In a transparent, competitive market you would expect loyal customers to be getting good deals. And clearly, as I have been saying for the last three and a half years, that is not the case."

Richard Lloyd, executive director of consumer group Which?, said: "This is a watershed moment for the energy market as the CMA confirms what we've known all along: that competition is not working for consumers.

"The Competition and Markets Authority now needs to develop a set of solutions to repair the market and make it work for everyone, not just the suppliers.

"This must include establishing a fair price that people can trust, to restore consumer confidence in the energy system.

"Consumers will also be looking to politicians of every party to set out how they'll deliver fair and affordable energy prices in the future."

SSE chief executive Alistair Phillips-Davies said the probe together with the forthcoming general election meant "short-term uncertainty" but added that they gave the chance of achieving "greater regulatory and policy stability" in the market:

He said: "It is in everyone's interests that we have a trusted energy market that not only works for customers but is seen to do so."

E.ON said it had disagreed on the earlier CMA statement and requested that "intrusive regulation and the political climate" should also be considered.

But it said it had been calling for a full market probe since 2011 and had been "open and fully supportive" of the investigation.

EDF said it had also been calling for the investigation since 2011 and would "continue to engage actively with the CMA team".

The probe comes after the energy regulator Ofgem referred the sector for a full-scale competition investigation last year. Ofgem welcomed the latest CMA statement and said it would consider it carefully before responding.


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