Government unveils energy reforms

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Davey urges energy supply switchThe Government has unveiled a package of reforms in the energy market, including the prospect of criminal sanctions, a new probe into firms' accounts, increasing penalties for market manipulation, and moves to make switching supplier simpler.

Energy Secretary Ed Davey said the industry needed to change to put consumers "in control", amid continuing controversy over rising bills.

The announcement followed a blazing row between the Government and Labour over how to tackle energy costs, with the Opposition pressing ahead with its pledge to freeze bills if it wins the next general election.

Four of the Big Six energy companies have announced average hikes of around 9% in recent weeks.
Mr Davey revealed that his department will consult on introducing criminal sanctions for anyone manipulating the energy markets.

He said the reforms will make it easier for consumers to switch and get the best deal, forcing energy companies to compete more actively for their custom.

The minister announced plans to make switching simpler and quicker, and a new probe into energy firms' accounts, to make them more transparent on profits and prices, as well as increasing penalties for market manipulation and regularly checking that the market is working.

He said: "The energy industry needs to change to put consumers in control. That means making it easy for people to change supplier to save money, it means regular market assessments to check their behaviour, and it means tougher penalties for market manipulation and putting an end to opaque finances.

"We want to push energy companies to make switching quicker and easier - because consumer action can force suppliers to change their ways. Bills are being redesigned through Ofgem's retail market reforms to give people the information they need to make switching easy - and we are taking direct action through the Big Energy Saving Network to bring first hand help to those vulnerable people who find switching difficult.

"Energy companies need to know that any wrongdoing will be uncovered and dealt with. That's why the regulators are going to carry out annual competition reviews, to make sure the energy market is operating properly. We are going to consult on increasing the sanctions for manipulation of the energy markets, so that they carry criminal penalties for the first time."

The Liberal Democrat Cabinet minister told the Commons that the aim was to allow consumers to switch supplier in 24 hours, rather than the current five weeks.

Energy companies should be more open about how they treat credit balances in consumers' accounts, making every effort to return money to customers who close accounts, he said.

Where that is not possible, energy firms should ring-fence that money to help the most vulnerable customers.

Energy and Climate Change Minister Greg Barker will shortly meet energy suppliers to discuss issues around direct debits, including the level of credit balances that energy companies hold.

Mr Davey also announced that his department will work with the Post Office to signpost elderly and vulnerable people to the 500 volunteers being trained by the Big Energy Saving Network to help people find ways to cut their bills.

Ofgem will carry out an annual market assessment, working with the Office of Fair Trading and the new Competition and Market Authority to monitor the behaviour of market participants and ensure the market is working for residential and small business consumers and that all suppliers can compete fairly, with the first assessment completed by next Spring.

The minister added that firms needed to be more transparent about how they reported their finances.

Ofgem will carry out a detailed assessment of energy suppliers' financial reporting practices and set out any steps to improve transparency, so that consumers can see where their money is going.

This assessment will also report in Spring 2014.

Mr Davey said: "This is a critical time for our energy future as we deal with years of neglect and under-investment. The choices we are making now will affect the lives of every person in this country for decades to come.

"We've done what's necessary to make sure the lights stay on in the short term, while the record £35 billion investment we've attracted since 2010 will make sure that old, dirty power stations are replaced with cleaner, more efficient and more home-grown alternatives - ensuring energy security and more stable bills in the next 50 years."

Smaller energy companies have accused the Big Six of ripping off bill-payers, particularly those who remain loyal to one firm.

Ed Miliband, who has pledged a 20-month energy bill freeze if Labour wins the 2015 general election, has dismissed the review.

The announcement was made as part of Mr Davey's annual Commons statement on energy, amid continued coalition tensions over so-called "green levies".

The Prime Minister has vowed to look at scaling back the environmental subsidies, which under-fire energy firms blame in part for fast-rising bills for customers.

Deputy Prime Minister Nick Clegg said he would fight any " hasty, ill-thought-through change" in Chancellor George Osborne's Autumn Statement in December.

Which? executive director Richard Lloyd, said: "There will be no great applause from the millions of consumers worrying about rising energy costs for the Government committing to make the regulators simply do their job.

"There is a huge weight of expectation that the Government and regulators will now deliver the radical changes that consumers need. Structural reforms to separate the wholesale energy market from domestic supply, and the Government cutting the costs its policies add to consumers' bills, are needed to effectively keep prices in check."

Green MP Caroline Lucas s aid: "Being told to switch isn't much use when the odds are totally rigged in favour of a handful of big companies.

"If the Government were serious about breaking the stranglehold of the Big Six, it would be supporting locally owned energy projects. It's quite shocking that the Energy Secretary's announcement contained no mention of community energy.

"Support for community and co-operatively owned renewable schemes, where people benefit from generating their own power, is pathetically poor compared to the lavish subsidy the nuclear industry has just received."

Gillian Guy, chief executive of Citizens Advice, said: "The Government's announcements today will make switching faster, but it also needs to be easier. The most radical thing in this statement is the potential to force energy companies to pass key data to third parties like switching sites.

"At Citizens Advice we want to see a personal shopping service for energy customers. Using energy data, customers could ask switching sites to compare their bills and find the cheapest deal."

TUC general secretary Frances O'Grady said: "Households are spending almost twice as much of their income on gas and electricity as they did a decade ago. This is what a living standards crisis looks like.

"But these proposals will do little to help, and look like the result of a desperate search for something to say rather than action to help household budgets.

"Ministers need to deal with the root causes of this dysfunctional market and excess profits without jeopardising our future energy security by cutting vital investment in low-carbon energy."

Terry Scuoler, chief executive of EEF, the manufacturers' organisation, said: "EEF supports the announcement to hold a competition review on the UK's energy market.

"However, given the numerous reviews into the energy market and competition that have taken place over the years, and their subsequent failure to deliver any real change, Government must ensure that this time it will make a material difference by undertaking a rigorous evidence-based approach, with real teeth."

Paul Massara, chief executive of RWE npower, one of the Big Six energy firms, tweeted: "Lo ts of wild talk about cartels but no evidence and the facts don't support. Where is the evidence ???? Put up or shut up."

Friends of the Earth energy campaigner Sophie Neuburg said: "Ed Davey is right, bills are soaring thanks to rising gas prices - but promoting easier switching is like rearranging the deckchairs on the Titanic.

"The real solutions - massive investment in energy efficiency and a rapid switch to renewables - are conspicuous by their absence from ministers' plans.

"By siding with the big energy firms and blocking a clean power target, Davey has shown he is more dormouse than 'tiger' when it comes to fighting for the environment."

Caroline Flint, shadow energy and climate change secretary, said: " It's another day, another policy that will do nothing to help people with their bills this winter. Hard-pressed energy customers struggling with the cost of living need action now, not endless reviews and consultations from an out-of-touch Government that refuses to stand up to the energy companies.

"What we need now is a price freeze because this is the only way we can deal with the energy companies overcharging. Labour's energy freeze will save money for 27 million households and 2.4 million businesses, and our plans to reset the market will deliver fairer prices in the future."

Mike O'Connor, chief executive of Consumer Futures, said: " We welcome the move for faster and smoother switching. Energy switching is slow, frustrating and turns people away from engaging with the market.

"But an announcement on a new competition audit needed to show clearer purpose and drive to win the confidence of consumers.

"The current mood provides politicians, regulators and competition authorities with an opportunity to hack through the thicket and decide whether or how the market is failing consumers and what can be done about it.

"Consumer Futures has called consistently for a full competition commission inquiry. This would take some time, but would get to the heart of whether the market is failing and what serious reform would entail. The competition audit must not be a pale imitation. The worst outcome would be another inadequate process that puts off the hard and challenging decisions about the structure of the market.

"Resisting a full inquiry year after year has meant that the energy market has sat back comfortably in the long grass for almost a decade. It flies in the face of the political mood, but we need more haste, less speed."

Ian Peters, managing director of residential energy at British Gas, said: "Rebuilding trust in Britain's energy market is a top priority, which is why we strongly support the proposals outlined by the Secretary of State today.

"We welcome the new annual review of competition for the energy sector, and we share the ambition for 24-hour switching, which will encourage more customers to engage with Britain's competitive energy market.

"British Gas is already working with others to make switching easier and faster, and we look forward to talking with the Secretary of State about this."