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'Consumer engagement with energy markets' report published

20 December 2012

The Energy and Climate Change Committee has published its report into Consumer engagement with energy markets at 00.01am, Thursday 20 December (HC 554-I).

New Report: MPs call for greater transparency in energy market.

The 'Big Six' vertically integrated energy companies should be required to report on how much electricity have bought from or sold to themselves, in an effort to increase transparency and competition in the energy market and restore consumer trust, MPs on the Energy and Climate Change Committee have said in a new report.

Tim Yeo MP, Chair of the Energy and Climate Change Committee, said: 

"Even before the recent reports of wholesale price-fixing, we were extremely concerned about the lack of transparency around wholesale prices and suppliers’ trading arrangements.

These allegations have reinforced the need for far more transparency. We are sufficiently concerned about this whole issue of profits and pricing to want to revisit it in more detail in the near future.

Ofgem must get its act together. It should require greater transparency around wholesale prices, trading and the link between wholesale prices and supply prices.

We intend to explore ways in which this might be done in our forthcoming inquiry on prices, profits and poverty."

The MPs find it unsatisfactory that Ofgem should be so hesitant about launching preliminary investigations into potentially anti-competitive behaviour and have called for a more proactive approach from the energy regulator. The report say it is unacceptable that some suppliers have allowed their operating costs to increase year on year rather than striving to achieve greater efficiencies. It calls for operating costs to be monitored more closely so that suppliers can be held to account if they fail to give customers a good deal.

In order to provide greater transparency to consumers about individual suppliers’ profits and practices, Ofgem should also publish an annual report, aimed specifically at consumers and the media, outlining clearly the profits being made by vertically integrated companies across their whole portfolio.

The MPs are very concerned by evidence that ‘sticky’ customers may be being overcharged to subsidise cheaper deals for more engaged customers; particularly given the evidence that vulnerable consumers are more likely to be sticky. They are calling on Ofgem to explain how it intends to use its new fairness proposals and supplier standards of conduct to ensure that ‘sticky’ customers do not get ‘ripped off’.

The MPs also say that the PM’s surprise announcement on energy tariff simplification has caused confusion. It is not clear whether the Government’s tariff proposals make Ofgem’s updated RMR proposals redundant. It would be disappointing and counter-productive if the Government’s decision to legislate took longer to implement than Ofgem’s RMR proposals, thereby delaying benefits to consumers. The snail-like pace of Ofgem’s progress on RMR may have been frustrating, but at least its updated proposals are evidence-based. These issues are far too complex for off-the-cuff policy-making, the MPs conclude.

The Committee is concerned that the main aims of Ofgem’s Retail Market Review may not be achieved if consumers still find it difficult to compare tariffs after the final changes are implemented. In particular, consumers would not be able to compare tariffs at a glance under the updated RMR proposals, and the proposed Tariff Comparison Rate may not be sufficient to help consumers with consumption patterns which differ from the average to compare tariffs. The report recommends that Ofgem should be prepared to amend the measures it has implemented under RMR if there is no evidence after 12 months that they are making it easier for consumers to switch.

Tim Yeo MP said:

"Trust in energy companies is at rock bottom and consumers don’t have the right information to hand to make informed choices about where they get their energy.

Most consumers simply don’t know how to interpret their energy bills and this puts them off attempting to switch suppliers.

The Government should be doing all it can to increase competition in the energy market and must make it easier for new entrants to join the market."

The Committee is concerned by the evidence it has received that consumers do not know who to trust to give them reliable, independent advice and information about energy matters. The report outlines the need to help consumers to reduce their energy consumption and costs, and concludes that there is a case for a single, dedicated organisation to advise consumers on energy matters. The Committee recommends that DECC should consult with relevant stakeholders about the possibility of establishing an independent organisation tasked with providing consumers with independent energy advice. The ultimate aim should be to have a single, impartial, dedicated service that consumers can trust as their first port of call with any query about energy matters. Ideally there should be a single helpline and a single website so that there is no confusion among consumers about where they should go for advice.

Tim Yeo MP concluded: 

"A recurring theme throughout this inquiry has been the lack of transparency about where the money that people pay for their energy goes. Consumers deserve greater transparency in their bills, not least regarding the extent to which they are contributing to investment in a safe and secure energy future for the UK.

There is currently great public interest in energy, particularly in relation to tariffs and bills. Now is a better time than ever to launch a national conversation about what we want for our energy future in this country and how we are all going to contribute to those aims."

The report recommends that DECC should lead a full and frank conversation about the contribution that consumers are being expected to make to ensuring we have safe, secure and affordable energy supplies in future. In particular, it is crucial that consumers are aware that their bills may continue to rise unless they take action to reduce their energy consumption where possible. DECC should set out a detailed strategy and programme for action over the next two years. This should outline how it will engage with the public on these issues in a meaningful way.

Further Information

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