Competition and Markets Authority: Customers Missing Energy Savings

Energy BillsAccording to an inquiry being carried out by the Competition and Markets Authority (CMA), a lot of customers are missing out on very big energy savings. Specifically, those on dual-fuel tariffs with the “Big Six” energy suppliers frequently overpay as a result of not switching to another supplier.

In fact, early evidence from the CMA suggests that over 95% of customers within this group could be saving money by switching to another supplier or even changing tariff with their current supplier. For each customer, the potential savings mostly range from £158 to £234 a year. As the “big six” currently account for roughly 92% of the energy market in the UK and dual-fuel tariffs are a popular way to keep energy bills simple, this represents a very large segment of customers.

The revelation that so many customers are not being given the best available price for their energy underlines other recent price controversies that the industry has faced. According to Richard Lloyd of Which?, a prominent consumer rights organisation, this shows that the energy industry is letting down its customers.

Lloyd called for the regulator to harden its approach to the energy industry, saying “Politicians and regulators have put too much faith in competition driving keener prices for consumers – this simply hasn’t worked.”

The CMA’s inquiry was officially launched last summer after a referral from Ofgem, the industry regulator. Ofgem’s referral stemmed from some fairly longstanding concerns about the way that just six companies dominate the industry, and questions about whether fair competition is taking place.

The issue of overpayment is partly due, according to the CMA, to large numbers of “sticky” customers. These were inherited by big suppliers in the 1990s when the energy industry was privatised, and have rarely if ever thought about changing suppliers or tariffs. Over the years, energy suppliers have introduced better, more competitive tariffs to attract new customers but happily left their existing customers on their old variable tariffs paying higher prices.

The next stage of the investigation will look into accusations that energy companies have been pushing prices upwards through their handling of wholesale price changes. In particular, energy companies have been accused of putting up prices readily, regularly and significantly when wholesale prices rise with a fervour that is not reflected by price drops when wholesale prices fall. This issue has come to the fore recently, as the falling cost of oil has driven wholesale energy prices downwards but the industry has been accused of making only “token” price cuts.