Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/668878
22 | 22ND - 28TH APRIL 2016 | UTILITY WEEK Customers Analysis T he debate around whether consumers are paying a fair price for energy hit the headlines again when the Competition and Markets Authority (CMA) published its analysis last month. It stated that customers on standard vari- able tariffs (SVTs) could save more than £300 a year, and it repeated its claim from last summer that energy customers have been overcharged by £1.7 billion a year. That £1.7 billion figure is contentious. The major energy suppliers dispute it, while in the CMA's own analysis another metric for assessing overcharging says the figure could be below £700 million a year between 2007 and 2014 for domestic customers. There are a number of different elements that go into the final price consumers pay. These include: the wholesale price; the suc- cess – and honesty – of wholesale traders; transmission and distribution costs; opera- tional costs of the supply companies; money that is turned over for investment; and, finally, profit for the companies involved. With wholesale costs continuing to fall dramatically but energy tariffs down by roughly 5 per cent in the latest round of cuts, it begs the question, why haven't they come down more? And are consumers being charged a fair price? What is a fair price? The CMA has accused the big six of overcharging customers by as much as £1.7bn a year – something the suppliers angrily deny. So who is right? Utility Week investigates. C alls for clearer, more transparent and more informative bills have echoed throughout the industry for years. These have included calls for the wholesale price – the largest single element of an energy bill making up 47 per cent of the cost – to be included on a domestic energy bill. At the start of the year, SSE redesigned its bill to lay out usage costs for customers in a move described by pressure group the Cam- paign for Plain English as a "fine example of clear commercial communication". The new bill however, created with the input of consumer focus groups and design- ers, still does not include a precise, item-by- item breakdown. SSE said: "The challenge is in balancing information and simplicity. A breakdown of the bills is currently included on SSE's bills but is not a part of the new design. The research told us that there was other infor- mation that customers wanted and needed more than this. "However, it is important to note that the new simple bill is theoretical at this stage. It is not being sent out to customers and we have no plans to remove the bill breakdown from our current bills at present." British Gas also regularly produces – but does not publish on its bills – a breakdown of the elements that make up a typical dual fuel bill (see infographic, above). The inclusion of this information on bills is supported by Energy UK's chief execu- tive, Lawrence Slade. He tells Utility Week: "I don't think if there was just wholesale pric- ing on the bill that would work in proving to consumers what their energy is costing. "I think overall having an average break- down of the bill, updated on a regular basis, would be very useful to help consumers understand the cost of the energy system and the cost of decarbonisation." However, he adds: "The problem is there is one hell of a lot of information on the bill already. We need to find ways to simplify it and get to the bottom of what it is people want to see." SJ * Based on actual 2015 results, this is an average of all payment types/tariffs/regions and is based on consumption levels of 427 therms for gas and 3,496kWh for electricity BRITISH GAS'S CALCULATION OF THE BREAKDOWN OF AN AVERAGE BILL Breaking down the bill to show what's a fair price