Ed Davey sets out energy sector reforms

Power companies are to be placed under scrutiny - pictured is Longannet Power Station at Kincardine-on-Forth. Picture: TSPL

In an attempt to combat the growing public anger over rising energy prices, the Energy Secretary Ed Davey unveiled a series of measures in an attempt to hand more “control” to consumers who are paying for the rises imposed by the “Big Six” energy companies.

The package includes moves to make it easier and quicker for customers to switch suppliers, moving from the current time of around five weeks to just 24 hours.

Mr Davey’s announcement was an attempt to seize the initiative on the issue from Labour, which has stolen a march on the UK government by pledging to freeze energy prices should Ed Miliband’s party win the next general election. The UK government has argued that Labour’s approach would simply see energy companies push up prices in anticipation of a freeze, and energy companies have warned that Mr Miliband’s proposal could cause blackouts.

The Liberal Democrat minister revealed his department will consult on introducing criminal sanctions for anyone manipulating the energy markets.

He said the reforms will make it easier for consumers to switch and get the best deal, forcing energy companies to compete more actively for their custom.

Mr Davey told the Commons that energy companies should be more open about how they treat credit balances in consumers’ accounts, making every effort to return money to customers who close accounts.

Where that is not possible, energy firms should ringfence that money to help the most vulnerable customers.

Mr Davey also announced that his department will work with the Post Office to direct elderly and vulnerable people to the 500 volunteers being trained by the Big Energy Saving Network to help people find ways to cut their bills.

Ofgem will carry out an annual market assessment to monitor the behaviour of market participants and ensure the market is working for residential and small business consumers and that all suppliers can compete fairly, with the first assessment completed by next spring.

Mr Davey added more transparency was needed on how firms reported their finances.

Ofgem will also assess energy suppliers’ financial reporting practices and set out any steps to improve transparency so that consumers can see where their money is going. This assessment will also report in spring 2014.

But his plans were met with a withering response from critics of the price hikes, who said his plan resembled “rearranging deckchairs on the Titanic”.

Mr Davey acted in the same week that high-profile figures working for the Big Six – ScottishPower, British Gas, Npower, E.ON, EDF and SSE – were criticised by MPs on the House of Commons energy and climate change committee. MPs were angered by the rising bills triggered by four of the Big Six, indicating that charges would rise by an average of over 9 per cent.

SSE was the first of the major energy firms to announce it was raising gas and electricity bills. Its increase of up to 10 per cent will add a typical £106 to annual dual-fuel customer charges for an average bill of £1,380.

British Gas is increasing electricity bills by 10.4 per cent and gas tariffs by 8.4 per cent for around 7.8 million families this winter. Npower will put up electricity and gas prices by 9.3 per cent and 11.1 per cent respectively from 1 December, affecting about 3.1 million customers.

ScottishPower will raise gas tariffs by 8.5 per cent and electricity prices by 9 per cent on average from 6 December for its 2.2 million customers.

Making his announcement, Mr Davey said: “The energy industry needs to change to put consumers in control.

“That means making it easy for people to change supplier to save money, it means regular market assessments to check their behaviour, and it means tougher penalties for market manipulation and putting an end to opaque finances.”

But green campaigners were critical of the idea that switching companies would have an impact when gas prices were rising, while Labour said a price freeze was the way forward.

Friends of the Earth energy campaigner Sophie Neuburg said: “Ed Davey is right. Bills are soaring thanks to rising gas prices, but promoting easier switching is like rearranging the deckchairs on the Titanic. The real solutions – massive investment in energy efficiency and a rapid switch to renewables – are conspicuous by their absence from the minister’s plans.”

Caroline Flint, shadow energy and climate change secretary, said: “It’s another day, another policy that will do nothing to help people with their bills this winter. Hard-pressed energy customers struggling with the cost of living need action now, not endless reviews and consultations from an out-of-touch government that refuses to stand up to the energy companies.

“What we need now is a price freeze because this is the only way we can deal with the energy companies overcharging.”

In the Commons, Ms Flint listed her own series of changes she thought the government should make to the energy market, including “putting an end to secret deals and requiring all electricity to be bought and sold via an open exchange”.

Mr Davey responded by saying that Labour must hand over any evidence it has showing the Big Six energy companies acting as a “cartel” so that the competition regulator could investigate.

Ms Flint’s Labour colleague Ian Lavery also claimed there was emerging evidence of a “hidden, protected, secret sort of cartel trading scheme” in which energy companies traded with each other at above the wholesale price before passing the increases on to consumers.

He asked the Energy Secretary to confirm “hand on heart” he was not aware of anything like this happening, a question Mr Davey did not appear to directly address in his response.

Reacting to the government’s reform package, Trades Union Congress general secretary Frances O’Grady said: “Households are spending almost twice as much of their income on gas and electricity as they did a decade ago. This is what a living standards crisis looks like.

“But these proposals will do little to help, and look like the result of a desperate search for something to say rather than action to help household budgets.”

Key points

Energy companies will be told they must make switching suppliers faster for consumers – with an ambition to move to switching in 24 hours, rather than the current five weeks, without increasing consumer bills.

The Department of Energy & Climate Change (DECC) will work with the Post Office to signpost elderly and vulnerable people to help them cut bills.

Ofgem will carry out a market assessment every year with the Office of Fair Trading and the new Competition and Market Authority to monitor the market.

The DECC will consult on introducing criminal sanctions for manipulating the energy markets in the same way as manipulating the financial markets does.