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Energy costs: Ofgem not doing enough, says new report

A new report by the Energy Committee for Climate Change says Ofgem must do more to improve the energy market for consumers.

It should be easier to switch energy suppliers and for new suppliers to enter the market, MPs said today.

‘Loss leading’ energy tariffs, where a supplier offers a cut-price deal to attract new customers, have previously been identified by Ofgem as an unfair tactic that stifles competition and unfairly penalises existing customers. Today the practice was condemned as anti-competitive.

The report also concluded that more needed to be done to incentivise switching among consumers:

“Consumer engagement with the energy market is low and there are various complex reasons for this. This lack of engagement is linked to low levels of competition and a high proportion of customers who are unlikely or unwilling to switch energy supplier in the near future.

“With little incentive for suppliers to offer consumers a better deal, some customers are getting worse deals than others, and this in turn reduces consumer trust in the energy industry.

“If Ofgem’s proposals to increase liquidity in the market do not deliver, DECC should be prepared to intervene.

Highlighting the dissatisfaction with Ofgem’s slow progress on market reform so far, the report went on to say:

“We find it unsatisfactory that Ofgem should be so hesitant about launching preliminary investigations into potentially anti-competitive behaviour.”

Greater transparency

Commenting on transparency in the market, the Committee noted the widespread lack of understanding of supplier profits:

“There is clear evidence that levels of consumer trust in energy suppliers is low, and this may in part derive from a lack of transparency. Some consumers blame energy company profits for rising prices. This is compounded by the lack of clear and understandable public information on energy company profits. Greater transparency is needed in respect of energy company profits and energy prices, including across the whole portfolio of vertically integrated companies.”

Calling for a more honest conversation, Consumer Focus said:

“While we continue in this debate where consumers do not really know what they are paying, and where there is a real issue over whether or not they are paying a fair price, there is a real danger that people will sit back and wait for somebody to sort out the market, when really — even if we had the most perfectly functioning market — we are still going to see increased prices.

“People are still going to need to change their behaviour and get energy efficiency advice, and the lack of clarity around price and real honest conversation means we are not getting customers to where we need them to be.”

“Currently, the opposite appears to be true of the energy market, with suppliers adopting similar pricing and hedging strategies, adding to consumers’ perception that suppliers are ‘all the same’.”

“If the largest suppliers have millions of customers who are unlikely to switch, there is little incentive for suppliers to offer these ‘sticky’ customers lower prices or a better service,” the report added.

All time low

Both the report and Ofgem’s review of the energy market highlighted the importance for customers to switch energy suppliers more often, making sure they are on the cheapest tariff available and promoting competition between suppliers.

“The report highlights yet again the importance of competition, transparency and trust in the energy market. Many of the issues raised should be addressed by Ofgem’s Retail Market reforms and it is important that it is not diverted from this important task; the market needs to be working properly, and as quickly as possible, so that consumers can see the benefits in terms of lower prices and more competitive deals,” said Ann Robinson, Director of Consumer Policy at uSwitch.

“The number of households shopping around and switching has fallen to an all-time low so it is vital that a strong measurement is put in place to ensure that Ofgem’s reforms are having the desired effect.

“If consumers are empowered then the number switching will increase, with the end result that suppliers will be forced to compete harder on costs, prices, products and services – this will be a win-win for consumers and for the industry as a whole.

“With this in mind we are urging Ofgem to introduce annual renewal notices similar to those sent by car and home insurance providers – our research shows that consumers would welcome this move. It is tough measures like these that will get more consumers engaging and that will deliver the strong, competitive market they deserve.”

Learn more

Read the full report

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