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22 | 26TH MAY - 1ST JUNE 2015 | UTILITY WEEK Sponsored report Insight A s the UK prepares for June's snap elec- tion, energy prices have returned to the top of the political agenda. Prime minister Theresa May has followed the exam- ple of Labour leader Ed Miliband in 2013 by promising to impose a price cap on energy suppliers if elected. Today's Labour party has gone even further, with talk of renation- alisation of the energy and water sectors. But what is it that makes energy prices play so well as a political issue? The answer is trust – or rather, the public's lack of trust in energy companies. The problem of broken trust is well doc- umented. Energy suppliers come 12th out of 13 on the Institute of Customer Service's trust index – beating only the telecoms and media sector. What is less well understood are the reasons behind it. Energy suppliers have made mistakes, with mis-selling and poor customer service tainting their reputa- tion. But the biggest challenge to trust is the rising cost of energy, which the public sees as profiteering – a perception politicians are only too willing to exploit. Mis-selling scandals have dealt a major blow to the industry's reputation, and most of the major players have been hit with multi-million pound fines for doorstep sell- ing and other aggressive tactics. Poor customer service, especially around billing, has also blighted the industry, in particular the big suppliers. Npower's tale is fairly typical. In 2011 it implemented a new billing system, which led to more than 500,000 bills being sent out late and more than two million complaints, which oen were not dealt with promptly. As a result, at the end of 2015 Ofgem ordered the company to pay £26 million in consumer redress. Even more damaging than tales of mis- selling and poor customer service are those ever rising energy bills (see Rising bills, below). Every year brings a fresh round of price rises, with accompanying "fat cat" headlines and politicians throwing their hands up in horror. Even the regulator, this year, stepped in, when Ofgem chief executive Dermot Nolan warned suppliers he would view price rises "very poorly" if they weren't based on rising costs. But behind the headlines, the truth is more complicated. Energy prices, while they have increased over the past decade, have largely followed wholesale prices. Cou- pled with this, the impact of environmental and social tariffs on the end bill has also increased, growing from 4 per cent in 2010/11 to 11 per cent by 2016/17. Whatever the reasons for rising energy prices, politicians are not interested in a debate. They see the public's ire as a way to win votes. Prime minister Theresa May and the Conservatives earmarked action on the energy companies as far back as March when she promised a "crack down" on bills. The proposed solution is for a price cap "to protect those who are paying an unfair amount" and to protect loyal customers – or those remaining on standard variable tariffs having failed to switch. Details of the Tory cap are scarce, although energy secre- tary Greg Clark has stated that the plan will be similar to the Competition and Markets Authority's (CMA's) recommended cap on prepayment meters. The heart of the problem A poor track record on mis-selling and customer service has been exacerbated by political cynicism to convince the general public that 'something must be done'. RISING BILLS IT'S ALL ABOUT THE MONEY Energy bills have been rising. In 2009, the typical annual dual fuel bill for a big six customer was £1,095. This had shot up to £1,286 by 2013, although it has dipped slightly since then to £1,165 a year. This movement in the average bill re- flects the movement in the wholesale price of electricity and gas. At the middle of 2010 these were £42.18/ MWh for electricity and 42.15p/therm for gas. These prices peaked in March 2013 at £62.9/MWh and 86.57p/therm respectively, before falling to the current levels of £53.37/MWh and 53.39p/therm. The long-term outlook is for these prices to gradually in- crease as UK capac- ity – both in terms of electricity generation and gas from the UK Continental Shelf – declines. Older forms of electricity genera- tion, such as coal, are being phased off the system, while more expensive and variable sources – such as wind and solar – are replacing it. In the wholesale gas market, the UK is becoming more susceptible to global prices, which remain volatile, and faces competition from other markets for the available supplies. The "central" price assumptions from the department for Business, Energy and Industry Strategy predict the cost of gas will increase to 62p/ therm by 2030, while electricity is also expected to increase, potentially by up to a third compared with 2013 levels. Price caps are "the wrong answer" SCOTTISH POWER CHIEF CORPORATE OFFICE KEITH ANDERSON Plans for intervention are "nonsense" FORMER ENERGY SECRETARY AND LIB DEM CANDIDATE ED DAVEY "The SVT cap will not harm consumers or competition" OVO FOUNDER AND CHIEF EXECUTIVE STEPHEN FITZPATRICK