Misselling is only the beginning of the energy companies’ sins

Reform of the energy market must go beyond clamping down on misselling to injecting real competition, writes shadow energy minister Huw Irranca-Davies MP.

Huw Irranca-Davies MP (Labour, Ogmore) is the shadow energy minister

The finding’s of today’s energy and climate change select committee report on the misselling of gas and electricity deals on the doorstep are hard to disagree with.

It is simply unacceptable that customers could be forced into agreeing to switch energy supplier – with complex tariffs and unclear financial benefits – as a result of pressurised selling on their doorstep.

When you switch energy supplier (bearing in mind that many don’t), you expect to receive good advice and make a saving each month or each quarter, not to find your bills are even bigger than they were before.

Yet that is exactly what many found. The select committee were told up to 40% of those who switched suppliers on the doorstep did not end up with a better deal. That is simply unacceptable.

It’s all well and good Energy UK director, Christine McGourty, stating:

“The rules around doorstep selling are tighter than ever.”

That doesn’t rectify the wrongful actions of salesman up and down the country who were simply in search of a quick buck. Scottish and Southern Power has already been prosecuted for the behaviour of its salesmen, and Ofgem is currently investigating four of the ‘big six’ energy companies over doorstep misselling.

SSE’s chief executive even received a bonus while his company was found guilty of misselling – the public will rightly be angry, and wonder whether the lessons have really been learned.

These energy companies need to look again at their operations, and ensure their slick sales tactics are dropped and that consumers are given the information they need to ensure they sign up to a tariff that is financially beneficial to them, and not to the commission-led salesmen.

But the problem of misselling was only one item addressed in this report. The report was the committee’s response to Ofgem’s review of the retail energy market, which was published in March 2011.  The regulator said at the time it wanted to “break the grip” of the big six energy firms, which between them have 99 per cent of the domestic energy market.

To achieve this, Ofgem wants energy companies – the big six – to auction up to 20% of their electricity generation output to increase price transparency and allow smaller players, particularly at the retail end, to enter the market. But auctioning just 20% of the power energy companies generate is unlikely to have any really effect, and it certainly won’t solve the problem of the vertically-integrated big six or break their grip on the domestic energy market.

Without greater effort by Ofgem and the government to create space for new energy players nothing will change; people will remain tied to one of the big six, and will continue to see their energy prices rocket with double-digit increases.

I want to see radical reform of the energy market to generate increased competition and greater transparency, so people know they aren’t being fleeced. We all need to know the price we are paying for our energy is fair.

That is why Labour believes – going far beyond what the government have in their Electricity Market Reform (EMR) July 2011 White Paper (pdf) – we should look at a pool system, where the energy companies have to sell 100% of their power into a pool and anyone, not just the big six, could buy power from there at the pool price.  It’ll be clear what price the energy is bought at, and therefore much clearer to know whether the price consumers pay is fair.

The current regulatory system has allowed energy companies to keep retail, trading and generation in one business, which maximises the return for shareholders, and can conceals costs and profits. That is just plain wrong. We need an energy market that not only provides the much needed investment, but one that ensures the price to consumers is designed to be fair, honest and transparent from the outset.

It’ll take some time before a new energy market regulatory system will come anywhere near to ensuring transparency for the consumer; but at a time when household bills reach record levels, industry experts argue that the wholesale price of energy is still lower than they were three years ago during the financial crisis, and many this winter will be forced to choose between eating and heating, the government must act now.

The energy and climate change secretary, Chris Huhne, has certainly acted. He’s cut funding to Warm Front, and his flagship policies, the Green Deal and Energy Company Obligation, are stuck in the parliamentary rut, whilst he tells consumers to simply switch energy suppliers to find cheaper deals.

But at this moment – when 99% of consumers are with the big six, who are one by one raising their energy prices by double-digits – only a referral to the Competition Commission can give bill payers confidence that they aren’t being ripped off, and to allow energy companies to defend their pricing strategies.

Regulatory reform is the long game, but a referral to the Competition Commission – who could provide an interim report in short order – is the only immediate answer to addressing the real concerns we all have over the drastic price rises in energy.

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