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Energy is boring, isn't it? And when
topics are dull, people tend to pay less interest and consequently,
the opportunity arises for firms to offer them poor value or even to
rip them off. Put simply, generally householders show little
interest in energy and, so generally, receive poor service and high
prices.
This First Rule of Consumer Boredom applies to personal finance, and
explains why it has experienced so many scandals in the past 20
years, such as personal pensions, endowment mortgages, current
account penalty fees and payment protection insurance.
While individuals have only themselves to blame for not taking a
closer interest in their finances, government and regulators have no
excuse for letting companies run rings round them because, unlike
householders, it's their professional responsibility to look after
our well-being.
Alas, politicians and regulators are still doing a bad job on
energy. Six months ago The Independent launched its campaign against
the Great Energy Rip-Off, asserting that energy bills were too high
because suppliers were failing to pass on steep falls in wholesale
prices.
We pointed out that although wholesale prices had halved in a year,
from 85p to 35p per therm for gas, and from £90 to £40 per megawatt
hour for electricity, direct debit bills – which had risen by £382
the previous year – had fallen by only 4 per cent to £1,141.
So we urged people to look for cheaper internet deals, suppliers to
cut bills by 10 per cent and for the regulator to ensure that retail
prices followed wholesale prices more closely, to prevent
profiteering. The campaign is thought to have prompted thousands of
people switching to cheaper suppliers and raised the heat on the Big
Six – British Gas, E.ON, EDF Energy, Npower, Scottish & Southern and
ScottishPower. On 18 November, the Energy Secretary, Ed Miliband,
demanded they cut bills over the winter.
In this, the campaign was successful, but overall, it must be
admitted, it failed. Despite Mr Miliband's stern words, the
companies flagrantly delayed cutting bills until almost at the end
of peak winter demand, despite receiving even more money than
expected from January's cold snap. British Gas cut first, on 5
February, knocking 7 per cent off gas, and Spanish-owned Scottish
Power was the last to follow, cutting gas by 8 per cent from 31
March. (It is worth noting that the four foreign-owned energy
suppliers E.ON, EDF Energy, Npower and ScottishPower generally
charge more than the two British-owned companies).
As a result of these high prices and snowy weather, winter energy
bills rose to a record £532.70 between January and March, it was
estimated this week. Mark Todd, director of Energyhelpline.com,
which calculated the figure, warned customers: "In a privatised
energy market, there is little governments can do, and they need to
be honest and tell people that the only way to reduce their bills is
by taking personal responsibility to find the best deals."
Perhaps the answer to that would be for politicians to change the
way the market works. Alas, the publication of this week's general
election manifestos suggests that the biggest players in the
£25bn-odd-a-year home energy supply business need not hire any new
lobbyists. If anything, the will to act seems to have faded.
Labour's manifesto says it would "ensure greater competition in the
energy supply market," but declines to specify how this would be
achieved. The Liberal Democrats would end the environmentally absurd
practice of charging more for the first units of power used in the
home, and raise protection for rural homes that are off the gas
grid. The Tories would reform the regulator Ofgem and ensure that a
supplier's cheapest tariff is stated on bills. But, disappointingly,
the Conservatives have omitted their previous strident (and welcome)
commitment to refer the industry to the Competition Commission for
an investigation.
Energy is dull, but it matters, to everyone paying £100 or so a
month – one of the biggest chunks of consumer expenditure – and
especially to those who cannot afford rising prices and end up going
hungry or shivering.
In one of the last reports of Parliament's last session, the Energy
and Climate Change Select Committee noted the Government was likely
to miss its own targets on fuel poverty. Ministers had aimed to end
fuel poverty in England among households containing the elderly,
disabled or children this year – and entirely by 2016, but the
cross-party committee concluded: "The first target is going to be
missed and the second looks difficult to hit."
Derek Lickorish, chairman of the Fuel Poverty Action Group, told the
MPs that suppliers had done little to identify those most in need of
help. According to their report, Mr Lickorish had "argued that
energy companies spend huge sums and engage some of the best brains
to develop sophisticated demographic modelling and to target
customers effectively, and that that skill could be coupled with
information about people's incomes to target effectively the fuel
poor.
"However he noted that work on data sharing began in 2005 and that
'it has taken us five years to get this far, which is
unforgivable'."
Perhaps if we took more interest...
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