Energy companies must come clean about their costs and the impact they have on bills

Ed Davey needs to ensure total transparency from energy companies about their costs and the impacts on bills, writes IPPR’s Reg Platt.

Reg Platt is a research fellow at IPPR

At Monday’s Fair Energy Summit the Secretary of State, Ed Davey, blamed energy companies for uncertainty that exists with the cost of his new energy efficiency policy, the Energy Company Obligation.

With new evidence from IPPR (pdf) showing the cost of previous energy efficiency policies has been significantly lower than the government predicted, it is time for the suppliers to come clean about their costs and the impact they have upon bills.

When it is introduced in January, the Energy Companies Obligation (ECO) will oblige energy companies to improve the energy efficiency of homes in order to reduce emissions and tackle fuel poverty.

Speaking about the policy at the Fair Energy Summit, Davey said:

“One of the key difficulties in reaching estimates [of how much ECO will cost] has been the lack of transparency from the energy companies.

They have not given us a clear picture of how much they were spending to comply with previous obligations… And we don’t know what costs they’ve been passing through to consumers.”

He should take note of analysis in a new report by IPPR, Energy Efficiency: who pays and who benefits (pdf), which shines some light on the energy companies’ costs.

IPPR’s report shows the suppliers’ costs for the energy efficiency obligation, CERT, may have been 40 per cent (around £14) less in 2008 than the government projected when it launched the policy. It is not clear if the energy companies passed this £14 saving on to consumers.

The report also finds the cost of CERT may have been lower than the government predicted up to 2011.

The energy companies have blamed rises in the cost of energy efficiency policies, including CERT, as one factor behind their decision to increase tariffs this winter. IPPR’s report shows the cost of CERT has risen recently but this is largely because the energy companies under-performed against their obligations in 2011 and has not had a major impact on bills.

Table 1 below, taken from the report, shows the progress of the energy companies towards achieving the SPG sub-target within CERT, which directs support towards vulnerable households, in March of this year.

The SPG target was introduced in April 2011 and must be completed by the end of 2012, meaning the four suppliers with less than 30 per cent of their target completed in March – British Gas, EDF, Scottish Power and SSE – left themselves with a lot to do to fulfil their obligations in time.

In 2012, as these companies have sought to achieve their targets by finding large numbers of eligible customers within a decreasing time window, costs have risen.

Table 1:

Even if the cost of the SPG target has risen by 85 per cent in 2012, as one energy company has claimed, IPPR’s report shows this will have added just 0.5 per cent to energy bills. This compares to recent tariff increases by the energy companies of 6 to 11 per cent. The cost of policies and the cost of transmitting and distributing energy have increased but by far the biggest factor pushing up energy bills is rises in the wholesale cost of gas.

If we are to be sure consumers are getting a fair deal on their energy bills we need energy companies to come clean about their costs and what they pass on to consumersEd Davey should force the energy companies to open up their books for scrutiny so the true cost of CERT and the amount they have added to bills can be known.

Mr Davey should then oblige the companies to provide detailed information on their costs for delivering his new policy, ECO, and this should be put into the public domain.

Finally, the lack of transparency in the amount that the energy companies spend on wholesale energy, in particular when they do not buy it on the open market, must be addressed.

See also:

Graphic: The increase in energy bills – and how the rise might be steeper without efficiency measuresDecember 13th, 2012

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