Switching Energy Providers Could Save You £160 as UK Overcharged Nearly £2bn

By James O Malley on at

It turns out that the energy market is uncompetitive, and is costing you money, according to a new report. The report also confirms that the Pope is Catholic.

The BBC says the report by the Competition and Markets Authority (CMA) found that collectively the big providers - British Gas, E-On, Npower, EDF Energy, Scottish Power and SSE - charged customers more than they would if the market was actually competitive. Apparently if you switch providers, on average you would save £160 a year. Crikey.

According to the Indy this collectively costs us almost £2bn.

Perhaps we shouldn't be surprised that consumers aren't saving, given the complexity of the energy sector. According to the author James Meek in his book Private Island, the Neta electronic trading system used by energy companies to buy and sell electricity with each other basically made it a stitch up, with no one on the outside able to understand what is going on, so energy companies could do what they like. In the book he explains:

“Neta was fantastically complex. There is no evidence to suggest any elected politician has ever understood how it worked. […] Some specialists believe civil servants don’t understand it either. How could they? Its arcane codexes are intelligible only to corporate lawyers and accountants. Yet there was one important clue to how Neta worked: the electricity companies were all for it - this despite the fact that [Callum McCarthy, then chief executive of Ofgem, the energy regulator] championed it as a means of bringing them to heel.”

In other words, according to Meek the electricity companies have essentially “captured” the very system that should be regulating it. By implication, the electric companies are able to use their knowledge of the system to their own advantage, distorting the role that Neta is supposed to play.

Unfortunately, fixing the market to favour the consumer is tricky business. As the BBC notes, a recent reform by Ofgem (the energy regulator) found that reducing the number of available tariffs, ostensibly to make it less confusing, hasn't had the effect of making people more likely to switch. If more people were to switch, it would be more competitive, and the energy companies would have to work harder to compete for your custom.

The investigation does have a few suggestions though - including a "transitional" price cap whilst the industry gets itself together, and the CMA has also suggested rolling out smart meters (which feed back usage via the internet) first to people who use pre-pay meters, so they don't have to spend money unnecessarily. Similarly, it has suggested that contracts with energy companies shouldn't automatically renew, forcing people to consider their options every couple of years. [BBC]

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