18 Feb 2015

Gas and electricity bills – the key questions

We are paying too much for our gas and electricity and millions could have saved up to £234 a year if we had switched supplier or changed tariff, according to a competition inquiry.

We are paying too much for our gas and electricity and could have saved up to £234 a year if we had switched supplier or changed tariff, according to a competition inquiry (Getty)

The Competition and Markets Authority (CMA) carried out the inquiry into the big six energy firms after a referral from the regulator Ofcom. Its most worrying finding is that customers faring the worst are often those least able to afford this.

Why was the inquiry launched?

The CMA was asked to look at the energy market and the dominance of the big six suppliers – Centrica (British Gas), SSE, Scottish Power, E.On, RWE Npower and EDF Energy.

These firms, which account for 92 per cent of the market, have been accused by critics of quickly raising customers’ bills when wholesale prices increase, but taking too long to pass on savings when wholesale prices fall.

What happens next?

The CMA will look at whether the energy firms are abusing their market position. If this is shown to be the case, they could be broken up.

The CMA is also planning to scrutinise the firms’ profits to find out if they are excessive. It has not found any evidence that they have made excessive profits from the energy generation arms of their business.

How many people have lost out?

A majority of energy customers are on dual fuel deals, and the CMA says more than 95 per cent of them (18 million people) would have saved money if they had changed their tariff or switched to another supplier in 2012-14. They could have saved from £158 to £234 a year.

Who is most reluctant to switch?

The CMA says 40-50 per cent of electricity customers have stayed with the same supplier for more than 10 years. About 40 per cent of British Gas’s domestic gas customers have remained with the company for the same period.

Customers least likely to switch are “less educated, less well-off, more likely to describe themselves as struggling financially, less likely to own their own home, less likely to have internet access, more likely to be disabled or a single parent”.

They tend “to think switching is a hassle, that there are no real differences between suppliers and that something may go wrong if they switch”. They are also more likely to be on their suppliers’ standard variable tariffs (SVTs), which are higher than fixed deals.

The CMA found that the energy firms made 12 per cent more per unit for electricity and 13 per cent for gas from those on these tariffs – and that this part of the retail market could be afflicted by “weak competition”.

How have prices risen in recent years?

From 2009-13, energy prices rose by 24 per cent and 27 per cent respectively. Average profit margins for domestic customers were 3.3 per cent.

Have complaints risen?

Yes, the number of complaints recorded by the energy firms rose fivefold from 2007-13. Most of these complaints were about payments, billing and customer service.

How easy is it to switch?

Using price comparison websites (PCWs) to work out if there are better deals has become increasingly common, with almost a third of switchers now following this route, while others use telephone services. Many PCWs are signed up to a voluntary confidence code drawn up by Ofgem.

While first-time switchers can make big savings, energy customers switching for a second or third time will save less.

Independent suppliers offering cheaper fixed rate tariffs now account for 7 per cent of the electricity market and 8 per cent for gas. These suppliers had a 1 per cent market share in 2011.

With lower oil prices, are household fuel bills falling now?

Yes, the big six have recently announced cuts in gas bills from 1.3 per cent (EDF) to 5.1 per cent (Npower).