That’s why last week, Labour led a debate in the House of Commons on reforming the energy market. We called on the government to put all over-75s on the cheapest tariff and require the energy companies to sell the power they generate into a pool, thereby allowing new businesses to enter the market – increasing competition and easing the upward pressure on prices. We also set out our plans to abolish the energy regulator Ofgem, which has failed to protect consumers, and create a new energy watchdog with tough new powers, including the power to force energy companies to pass on price cuts when wholesale costs fall.
Of course, energy companies have to invest in new, renewable sources of energy. With a quarter of the UK’s generating capacity shutting down over the next ten years, we would have to invest in new energy infrastructure – clean or otherwise – anyway. So difficult questions need answering. How do we move from a high-carbon, high-cost economy to a low-carbon, low-cost one? How can we meet our climate change obligations while keeping the lights on? How can we help those who are off-grid as much as those who are on-grid? But to answer those questions, secure the investment we need, decarbonise Britain’s power sector and protect the public from hikes in their energy bills, it is more important than ever that we have a competitive energy market that delivers fair prices.
Energy companies need to know that if they fail to treat their customers properly there will be a price to pay, but the current energy regulator Ofgem is not up to the job. Time after time, Ofgem has ducked the opportunity to get tough with the energy giants, failed to enforce its own rules, and let energy companies get away with ripping off hard-pressed families and pensioners. The time has come to say goodbye to Ofgem and create a tough new regulator the public can trust.
Just giving Ofgem new powers is not the answer – because Ofgem isn’t using the powers it already has. Four years ago, Ofgem found that some customers were being charged different prices for using the same amount of energy and that these differences were not representative of the suppliers’ costs. A licensing requirement was introduced for suppliers stipulating that the tariffs they offer for customers who use different payment methods must be “cost reflective”. But there are still concerns that energy companies are using predatory pricing tactics to lure new customers.
Another area Ofgem has been too lax on is energy efficiency. In government, Labour put tough obligations on the energy companies to help vulnerable households make their homes more energy efficient through the Community Energy Saving Programme (Cesp) and Carbon Emissions Reduction Target (Cert), which are due to end in December 2012. Despite repeated warnings from Labour that the energy companies will miss their targets, Ofgem has failed to ensure that the energy companies meet their obligations.
Even the reforms Ofgem has introduced have not been enforced properly. In 2008, Ofgem launched reforms aimed at supporting consumers, addressing barriers to growth for smaller suppliers and ending discriminatory, unfair pricing practices. According to Ofgem’s own evaluation in 2011, these reforms have failed. Across 16 indicators, 12 showed no improvement or deteriorated, three slightly improved and only one, relating to the cost reflectivity of tariffs, was considered to have improved, although even this last verdict is questionable.
On too many occasions, Ofgem has ducked the opportunity to get tough with the big energy companies. In August 2011, Ofgem commissioned accountancy firm BDO to conduct a forensic investigation and make recommendations on how to improve transparency in the energy market. By May 2012, Ofgem had quietly dropped six out of the eight BDO recommendations, and “varied” the remaining two.
Ofgem is a creature of the past – not the future. It created and drove the market structure we now have, which is failing consumers. It is so closely aligned to the old model of unaccountable markets that it is incapable of taking the action needed to get fair prices for consumers. An energy market that is simpler, works in the public interest and protects the most vulnerable is in everyone’s interests – consumers, government, and the energy industry itself.
Caroline Flint MP, Labour shadow secretary of state for energy and climate change
This article first appeared in Utility Week’s print edition of 2nd November 2012.
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