Are you of the opinion energy costs go up a lot quicker than they stay down? Many are…and following an investigation by the independent Competition and Markets Authority these general feelings have been validated.
A full market review by the body has confirmed that between 2009 and 2013 householders and Small and Medium (SME) customers were left significantly out of pocket. Households paid £1.2bn more than they needed each year, and businesses were overcharged £0.5bn a year.
The electricity and gas regulator Ofgem referred the energy sector as a whole to the Competition and Markets Authority in June 2014.
The reason for this referral was that Ofgem’s own market assessment found evidence of practices in the market that prevented, restricted or distorted competition.
The Competition and Markets Authority subsequently carried out an investigation and issued its initial findings on 7 July 2015.
There have been well-documented, rapid increases in household prices in recent years, and a perception among the general public that prices and supplier profits were too high.
Most of the increases are a result of infrastructure charges for the networks, and the cost of supporting environmental subsidies.
Over the last 10 years, electricity prices have risen by 75% and gas prices by 125%.
Households on Standard Variable Tariffs were identified as being most at risk of paying higher charges because they are disengaged from the market.
In some instances customers on these tariffs are paying 10% more than they need to for electricity, and 13% for gas. Despite costing more, around 70% of Big Six customers remain on these types of tariff.
SMEs and microbusinesses were found to be also at risk of “considerable variation” in the rates available to them.
If these customers are “rolled over” after the end of a contract, new electricity rates have been 29% to 36% higher and gas rates have been 25% to 28% above the previous rates.
The Competition and Markets Authority said there was a lack of transparency around tariffs for these types of customers, and the average prices available are “substantially above the levels we expect to see in a well-functioning market”.
While there has been evidence of overcharging, profit margins among the largest suppliers still remain fairly small.
Their margins on household electricity averaged 2.1%, while gas margins were higher at 4.4%. Average profit margins on business from large Industrial and Commercial customers were 2%, but profit margins on SME supplies were much higher – at 10% on gas and 8% on electricity.
Several suggestions for improving competition in the market were put forward, including:
- Removing the auto-rollover of microbusinesses onto contracts that prevent easy switching to alternative suppliers
- Introducing a “transitional safeguard regulated tariff” that would be available to disengaged households and microbusinesses
- Having Ofgem oversee an independent price comparison website
- Changing the rules on the information that Third Party Intermediaries have to provide microbusinesses
The final recommendations are expected by the end of 2015; the Government has pledged to implement all recommendations in full.
In short: make sure your business avoids “out of contract” rates, submits termination notices in time to avoid being rolled into these less preferential terms.
The more research you do on suppliers and the tariffs they offer and what your own requirements are, the more informed a decision you will be able to make about your energy.
