New energy price cap comes into effect

Around 11 million households could benefit from a new cap on energy prices, which came into effect on 1 January.

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The new cap aims to ensure that energy customers on default tariffs – such as standard and variable tariffs – pay a ‘fair price’ for their energy.

According to energy regulator Ofgem, an average dual fuel customer paying by direct debit will pay no more than £1,137 per year. However, the amount consumers pay will depend on their exact energy usage, as the cap applies per unit of energy rather than to the total bill.

The cap will remain in place until at least 2020, with the level of the cap being reviewed every April and October, to take into account changes to the cost of providing gas and electricity.

However, some consumer groups have warned that householders could still save more money by shopping around for the best deal.

Commenting on the new cap, Gillian Guy, Chief Executive of Citizens Advice, said: ‘The introduction of this cap will put an end to suppliers exploiting loyal customers. However, while people on default tariffs should now be paying a fairer price for their energy, they will still be better off if they shop around.

‘People can also make longer-term savings by improving the energy efficiency of their homes. Simple steps, such as better insulation or heating controls, are a good place to start.’

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Watchdog proposes major reforms to UK energy market

Following an 18-month investigation into the UK energy market, the Competition and Markets Authority (CMA) has proposed a raft of reforms to increase competition and give consumers a better deal.

The watchdog found that, in total, customers may have been paying around £1.7 billion a year more than they would in a genuinely competitive market. Its recommendations include:

  • that the regulator, Ofgem, keeps a database of customers that have been on a standard rate for three years, which will then be opened up so that these customers can be targeted directly by other suppliers
  • ending the restriction on suppliers to offer just four tariffs
  • strengthening the ability of price comparison services to help consumers find the best deal
  • tackling ‘rollover contracts’, whereby customers are automatically put on less favourable terms.

It also recommends a price cap for all households using pre-payment meters – numbering around four million – until new smart meters are rolled out in 2020.

energy market

Responding to the CMA report, Energy Secretary Amber Rudd said: ‘This is a wake-up call to the big six [energy providers]. Energy customers should get a fair deal from a market that works for them. That’s why we called for the biggest ever investigation into the energy market and won’t hesitate to take forward its recommendations.’

Rhian Kelly, Confederation of British Industry (CBI) Business Environment Director, said: ‘Ensuring the energy market works for consumers is key. We need a market that bill payers have confidence in and can navigate easily, and we hope this ongoing investigation helps ensure this.

‘The proposal to lift the cap on deals that providers can offer is good news. It will give consumers more choice and help companies innovate to bring costs down.

‘It’s important that other reforms focus on supporting consumer engagement. Where caps on tariffs are considered, these should be targeted at the most vulnerable customers, helping those who are less able to shop around for the best deals.’

Labour to propose new energy price controls

Mar 2014

Amid warnings of blackouts from energy companies, Labour leader Ed Miliband is due to propose greater controls over energy prices with the aim of helping small businesses.

Despite concerns expressed by energy firm Centrica, Mr Miliband is planning to call a Commons vote next week to demand an immediate price freeze for business and domestic customers. Centrica’s chief executive, Sam Laidlaw, said there would be less ‘enthusiasm’ for investing in new power plants as an ‘inevitable consequence’ of the recent inquiry into profits.

The Coalition Government and Labour are each claiming credit for regulator Ofgem’s decision to investigate alleged profiteering.

In other energy matters, the Department of Energy & Climate Change (DECC) recently reported that the UK is now a net importer of petroleum products, after the closure of refineries and increased competition.

The DECC said: ‘Crude oil import dependence has been on an increasing trend as the production from the UK Continental Shelf continues to decline’.

The Office for Budget Responsibility last week downgraded its forecast for North Sea oil and gas tax receipts by a further £3 billion for 2014/15.

Labour to propose new energy price controls

28 Mar 2014

Amid warnings of blackouts from energy companies, Labour leader Ed Miliband is due to propose greater controls over energy prices with the aim of helping small businesses.

Despite concerns expressed by energy firm Centrica, Mr Miliband is planning to call a Commons vote next week to demand an immediate price freeze for business and domestic customers. Centrica’s chief executive, Sam Laidlaw, said there would be less ‘enthusiasm’ for investing in new power plants as an ‘inevitable consequence’ of the recent inquiry into profits.

The Coalition Government and Labour are each claiming credit for regulator Ofgem’s decision to investigate alleged profiteering.

In other energy matters, the Department of Energy & Climate Change (DECC) recently reported that the UK is now a net importer of petroleum products, after the closure of refineries and increased competition.

The DECC said: ‘Crude oil import dependence has been on an increasing trend as the production from the UK Continental Shelf continues to decline’.

The Office for Budget Responsibility last week downgraded its forecast for North Sea oil and gas tax receipts by a further £3 billion for 2014/15.

Ofgem queries energy retail profits

The Competition and Markets Authority has been asked to decide ‘once and for all’ whether profit rises for energy suppliers are due to lack of competition.

Centrica, SSE, RWE, npower, E.ON, Scottish Energy and EDF Energy control 95% of the retail supply.

Ofgem reported that the ‘big six’ profits had risen from £233m in 2009 to £1.1bn in 2012. It said there was ‘no clear evidence of suppliers becoming more efficient in reducing their own costs.

‘Further evidence would be required to determine whether firms have had the opportunity to earn excess profits’.

It also said there was evidence of ‘possible tacit coordination reflected in the timing and size of price announcements’. This reduces competition, which can worsen the deal for consumers. There is also ‘new evidence that prices rise faster when costs rise than they reduce when costs fall’.

In a recent announcement, energy company SSE said it would not increase its prices for five million customers until 2016.