Energy market under scrutiny
If you're baffled by the energy market, you're not alone - but things should improve following an investigation which will look at ways to make the market simpler, clearer and fairer for all of us.
In June 2014, the energy regulator, Ofgem, referred the energy market to the Competition and Markets Authority (CMA) for a full investigation, after it found that competition wasn't working effectively.
We look at exactly why this has happened, and what it means for you.
Why is the energy market being investigated?
Ofgem recently completed an assessment of the energy market with the Office of Fair Trading and CMA, to see how well competition in the market is serving us the consumer, and small businesses.
It found that lots of us don't trust our energy suppliers, particularly as their profits seem to keep increasing, yet they don't seem to improve their customer service, or try to cut their own costs.
Ofgem has therefore called for a full investigation to help rebuild consumer trust and confidence, and to ensure that competition between suppliers is working.
What will the investigation focus on?
According to Ofgem, the investigation will focus on several different elements. These are:
- The relationship between the supply businesses and generation arms of the six largest suppliers.
- barriers to entry and expansion for suppliers
- the profits of the six largest suppliers
- whether there is sufficient competition between the large energy suppliers
- the trend of suppliers consistently setting higher prices for consumers who have not switched
- low consumer engagement that contributes to weak competitive pressure in the market
The hope is that the investigation's finding will result in a shake-up of the energy market that will result in increased competition between suppliers, so more people will be encouraged to switch.
When will the investigation start and finish?
The investigation has been underway since the end of June and is expected to take over a year. The CMA is expected to publish its final decisions by the end of 2015.
What could the outcome be?
If the CMA investigation finds that competition in the market is limited and that, for example, new suppliers aren't getting a fair chance due to the stranglehold of the big six, it could suggest changes in the structure of the energy market.
That could mean, say, that the biggest companies can no long be both energy generators and suppliers, and could be broken up.
What do suppliers think of the investigation?
Suppliers claim that they are fully supportive of the investigation (although they could hardly say otherwise).
Sam Laidlaw, CEO, Centrica (which owns British Gas) said: “We want an energy market that is trusted by customers, and we believe that an in-depth and thorough review by an independent and respected authority can help to achieve this. So Centrica welcomes the investigation.”
What protection exists at the moment for consumers?
Ofgem has already taken steps to encourage competition in the energy market by telling the 'big six' energy firms and the largest independent generators that they must trade fairly with independent suppliers, or risk steep fines.
New rules which came into effect on March 31, 2014, means that companies now have to publish their wholesale energy prices two years in advance. They also have to trade wholesale power twice daily. This makes it easier for smaller companies to buy energy more cost-effectively, which they can then sell on to consumers and businesses.
The regulator has also banned numerous and confusing tariffs which made it difficult for you to track down the best deals. Since January 2014, suppliers have only been able to just four tariffs per customer for electricity and gas.
These changes are a result of Ofgem's Retail Market Review into the energy market which started in late 2010.
Suppliers must also let you know which of their tariffs are the cheapest.
What about switching?
Ofgem has agreed with suppliers that they will make it easier for you to switch when we want to. By the end of 2014, you should be able to switch energy supplier within three days. And you'll get a two week cooling off period before the switch takes place, just in case you change your mind.
By the end of 2018, you should be able to switch suppliers in just one day. Currently the process can take up to six weeks, which includes a two-week cancellation period.
However, this shouldn't deter you from switching now, particularly if you're on a fixed tariff which has just ended, or which is due to finish soon. Usually once this happens you'll be moved onto your supplier's standard tariff, which is likely to be much more expensive than the tariff you're currently on.
Ofgem has a useful guide to switching suppliers, which shows you how to become an energy shopper in three simple steps: http://www.goenergyshopping.co.uk/en-gb/how-to-shop.
†10% of customers could save up to £670. MoneySuperMarket Data, May 2016