Energy companies fleecing customers

Gas burnerGetty

Ofgem's report into the energy market and whether it constitutes fairness for consumers has found that the energy companies are making massive profit margins.

So what is going on, and how can this be happening at a time when so many people can no longer afford to heat their home?

Rip off

Ofgem discovered that the average energy firm is making £125 from every dual fuel customer - up from £15 in June this year. It's the highest that margins have been for three years.

It arrived at this figure by working out what each company would make if energy prices and bills were to remain the same for the next year. In fact, it estimates that the profit margins will fall back a bit to around £90 per customer next year.

However, it's still a shocking sum of cash when you consider how people are struggling with their energy bills at the moment. When the average duel fuel cost is £1,345 a year it's a real insult to discover that £125 of this goes straight into the pockets of the providers.

It effectively lowers the standard of living for the most vulnerable in order to bolster profits.
Tim Yeo MP, chair of the Energy and Climate Change Committee, told the BBC this was "evidence of absolutely crass behaviour by the energy companies, with a jump in prices announced in the last few months ahead of what will be a winter in which most families face their highest ever electricity and gas bills".

So what is Ofgem doing about it?

It hopes the solution lies in making the market easier to understand, which it says will force the energy companies to compete more aggressively and lower their prices. "When consumers face energy bills at around £1,345 they must have complete confidence that this price is set by companies competing in a fully competitive market," said Ofgem's chief executive Alistair Buchanan."At the moment that is not the case."

The regulator plans to force suppliers to simplify their tariffs to make them easier to understand and to compare. These tariffs would simply have a basic standing charge that everyone would have to pay and then a single per unit charge, no matter how much or how little energy you use. The companies would still be allowed to have more complex tariffs but they would have to be for a fixed period of time, and prices would not be allowed to increase during the period that the tariff applies.

Of course, as always with these things there is a huge lead-in time, so we can expect a long cold winter, and probably a cold summer before the changes kick in in winter 2012.

Ofgem is also hoping to introduce changes to the wholesale market to allow greater competition. The big companies have an edge in the market because they generate energy and sell most of it to customers. Ofgem wants companies to be forced to sell 20% of their energy into the wholesale markets, allowing smaller players to snap it up and sell it more cheaply to build a presence in the market at a lower cost. However, we will have to wait until 2013 before we see these changes.

So what do you think? Will this help ease the pressure on families, or will we still be left with lower temperatures and higher bills? Let us know in the comments.
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