U.K. Energy Consumers Paying $1.9 Billion Too Much, CMA Says

Updated on

British consumers would have saved 1.2 billion pounds ($1.9 billion) a year from 2009 to 2013 with more effective competition in the energy industry, according to the U.K.’s antitrust authority.

Households could have saved as much as 160 pounds a year on gas and electricity by switching suppliers, the Competition and Markets Authority said in a report Tuesday. Bills need to be easier to understand and switching must be encouraged, it said.

“The majority of us are still on more expensive default tariffs,” Roger Witcomb, chairman of the CMA investigation, said in a statement. “Many customers do not shop around to see if there’s a better deal out there –- let alone switch.”

Energy regulator Ofgem requested the review after electricity rates more than doubled in 10 years, raising concern that utilities used their market power to increase prices. While the probe found the industry’s structure didn’t hurt competition or lead to excessive profits, it showed average prices for households were about 5 percent above the “competitive benchmark level.”

As many as 56 percent of people surveyed had never changed suppliers, were unaware it was possible or didn’t know if they had done so, according to the CMA. Just over a third said they had never considered switching. The number of consumer complaints surged fivefold from 2008 to 2013.

Complex Bills


Read this next:

“Consumer confidence depends on being able to understand and feel in control of the energy we use,” said Ann Robinson, director of consumer policy at uSwitch, a U.K. price-comparison site. “Overcomplicated bills and ineffective annual statements are some of the biggest barriers preventing consumers from becoming more engaged with the market.”

The CMA advocates expanding the use of smart meters to help customers track consumption and cut energy waste, and may consider a price cap on the most expensive tariffs to protect those who don’t shop around. Prime Minister David Cameron would be wary of price controls, according to his spokeswoman.

“The starting point here is: How do we have a competitive market that keeps bills down and makes it simpler for consumers to switch?” Helen Bower said. “The prime minister doesn’t think price regulation across the market is the right approach.”

Renewables Growth

Britain’s biggest energy suppliers are Centrica Plc, SSE Plc, Iberdrola SA’s Scottish Power, RWE AG’s nPower, Electricite de France SA and EON SE. While keeping the lights on for homes and businesses, they’ve also invested in low-carbon power in recent years, nudging bills higher.

Subsidies to spur the uptake of renewables are expected to reach 4 billion pounds a year by 2020, or 8 percent of domestic electricity bills, the CMA said. A new auction system for renewable capacity will help keep costs down, initially saving about 110 million pounds a year, it said.

“We need to ensure that the process of bringing clean electricity into the market is carried out efficiently and transparently and at the lowest possible cost,” Witcomb said.

The watchdog’s findings are provisional and will feed into final recommendations by year-end.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE