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Department and Ofgem also criticised

Energy customers ‘overcharged and confused’ says CMA report

Electricity billCompetition in the big six energy companies is not working and has led to overcharging of customers and confusion over how the market works.

A damning report from the Competition and Markets Authority says customers are not taking advantage of savings they could make by switching supplier.

But it also criticises the government department and regulator for failing to provide clear guidance to customers. It says such shortcomings have contributed to a lack of trust and confusion.

Following a year long investigation, the CMA reports that he average household currently spends about £1200 on energy each year. For the poorest 10% of households, energy bills now account for about 10% of total expenditure.

However, it says “widespread consumer disengagement is impeding the proper functioning of the market”.  An extensive survey of 7,000 people in Great Britain found that over 34% of respondents had never considered switching provider.

As a result, the report has found that dual fuel customers could save an average of £160 a year by switching to a cheaper deal. About 70% of customers are currently on the ‘default’ standard variable tariff (SVT) despite the presence of generally cheaper fixed-rate deals.

“Lack of awareness of what deals are available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers all deter switching – and the higher price levels reflect that suppliers can charge higher prices to these disengaged customers,” says the CMA

Its report points to “shortcomings in regulation and the ability to deliver change across the market.”

It also points to the need for a “coherent and transparent approach to responsibilities and policy implementation by those overseeing the industry.”

Roger Witcomb, chairman of the energy market investigation, said: “There are millions of customers paying too much for their energy bills – but they don’t have to.

“Whilst competition is delivering benefits to increasing numbers of customers, mainly through the growth of smaller suppliers with cheaper fixed-price deals, the majority of us are still on more expensive default tariffs. Many customers do not shop around to see if there’s a better deal out there – let alone switch. The confusing way energy is measured and billed can make comparing deals understandably daunting.

“The result is that some energy suppliers know they don’t have to work hard to keep these customers. It’s notable that there are such high levels of complaints about customer service.

“However, there are other maybe less visible factors which can have just as significant an effect on bills. We don’t think that regulatory interventions have always benefitted competition and customers. Technical issues around measurement of consumption and pricing and the slow process in introducing changes that could bring widespread benefit can also play a part.

“We want to look at ways we can make customers more active. Smart meters have the potential to transform customer understanding and engagement and their speedier introduction could have particular benefits for prepayment customers, who undoubtedly get the worst of things at present. We want to look at technical and regulatory reforms further up the chain that could also benefit competition and the customer.”

Responding to the report, SSE, trading as Scottish Hydro, said it had argued that energy markets in Great Britain are generally well-functioning and competitive.

Alistair Phillips-Davies, SSE’s chief executive, said: “SSE has consistently maintained that whilst customers already benefit from healthy market competition, there is always room for improvement. We will now examine today’s publications in detail, along with the analysis that underpins them. 

“We will also  continue to work constructively with the CMA as this process continues  to help ensure that the opportunity presented by this investigation is fully grasped, and that the final result is an enduring outcome that gives customers confidence, allows regulators to regulate, and encourages investors to invest in the Great Britain energy market.” 

Andy Willox, the Federation of Small Businesses’ (FSB) Scottish Policy Convenor, said: “The CMA was right to launch such an in-depth review of the energy industry and their findings vindicate FSB campaigning on this issue.

“Consumers, including Scotland’s 330,000 small firms, are not being well served by energy providers. There is a lack of transparency and competition in the market, and that needs to change. Energy costs are a particular burden on Scotland’s small tourism businesses and we need to see action in this area to see these firms treated fairly.

“The CMA report says small businesses are being deterred, impeded and discouraged from gaining better deals within the energy market. This is leading to disengagement, which in turn reduces competitive pressures in the market, giving power to energy companies to charge what they like.

“The CMA study reveals a range of issues for small firms, most worryingly highlighting eight per cent margins on micro business energy bills, compared to three per cent on domestic charges. Now that these problems have been officially recognised, we want to see the CMA pushing to the next stage quickly and developing practical solutions.”

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