The electricity supply market has been branded dysfunctional and uncompetitive by smaller firms

Big Six energy firms acting 'like a cartel'

The Big Six energy firms are acting "like a cartel" and ripping off their customers, the boss of a smaller competitor has claimed.

Ecotricity's Dale Vince said energy companies had been taking advantage of consumers since the utilities were privatised and the market is "dysfunctional".

His comments came after MPs on the Energy and Climate Change Committee were told by energy firm bosses yesterday that rising wholesale costs and environmental "stealth taxes" were behind the average 9.1 per cent hike announced by the major firms.

But Vince, who claimed his firm's investment in renewable energy was "insulating us from the rising cost of fossil fuel", said wholesale costs alone could not justify the increase in bills.

He told BBC Radio 4's Today programme: "They have cited three factors: the rising cost of wholesale fossil fuels, Government levies and the cost of distribution. All three of those are valid, in the case of wholesale price rises right now, if you look back over 12 months, then they are not justified in raising their retail prices because of wholesale movements in this year.

"We had a close look at that and therefore announced our own price freeze."

Asked if the firms were "ripping us off", he said: "I think there's been a degree of that going on ever since privatisation back in the early '90s."

Vince explained how he believed the Big Six operated: "They make it very confusing for customers and they make it very difficult for them to leave. That's how they create this inertia in the market which puts people off switching. That's probably one of the worst things that they do, the most uncompetitive things that they do."

Tony Cocker, chief executive officer of E.ON, told MPs he had written to Prime Minister David Cameron calling for a Competition Commission investigation into the industry to be set up to help reassure customers.

But Vince said: "I don't think you need an inquiry to tell you this market is dysfunctional, you just have to look at it. Six big players have a 95 per cent market share and they seem to operate like a cartel, the prices go up in conjunction.”

He added: "Privatisation in the energy sector has simply failed."

The businesses practices of the "Big Six" were also called into question by small scale competitor Ovo Energy at yesterday’s Commons hearing.

Managing director Stephen Fitzpatrick told MPs he "can't explain" the price rises being imposed because his company was buying gas at a cheaper price – 5p a therm less – than it had in 2009.

Loyal bill-payers are charged are a far higher rate, in some cases £200 more, and loaded with environmental costs than those who switch but the companies responsible go "unchallenged" by Ofgem, he said.

"It looks to me like a lot of energy companies, a significant number of the Big Six, are charging the maximum price they feel they can get away with to the customers that they feel will not switch under any circumstances and then maintaining the illusion of competitive pricing with tariffs targeted towards a very small number of relatively well-engaged customers," he told MPs.

"In the case of npower, which is the worst offender, historically and today the price differential is about 16 per cent, which is about £200."

He accused British Gas of being the "most active" in terms of running a dedicated "win back team" whose sole job was to call up customers that were leaving to say 'now we can cut your bill'.

"When this kind of behaviour is allowed to go unchallenged, and an ex-monopoly advantage that the Big Six have, is allowed to go unchallenged by Ofgem, then you will never get effective competition.

"If you don't have effective competition in a retail market then you are always going to be trying to find out where the money has gone and time and time again you will hear very clever, very complex, very confusing answers and you will never get to the bottom of it. Effective competition is the only solution to lower bills."

Fitzpatrick has previously suggested that the larger energy companies pay over the odds for energy when their retail arms buy from their own wholesale divisions – a claim the other energy bosses denied today.

Pressed on the allegation, Tony Cocker, chief executive officer of E.ON, said: "We buy our electricity and our gas for the retail business from the market via our trading business. We operate our businesses on a standalone basis. There is absolutely no cross-subsidy between the businesses."

Cocker, who described green schemes as a "stealth tax" or "poll tax", said E.ON had not yet made a decision on whether to follow the other firms and increase prices.

"We will hold our prices as long as we can," he told the MPs, adding that his company faced the same pressures as the other firms, with rises in wholesale and network costs, as well as the social and environmental obligations.

He has written to Prime Minister David Cameron calling for a competition commission investigation into the industry to be set up to help reassure customers.

"I fundamentally believe that this market is competitive but I acknowledge we are not trusted and therefore I believe we need to have a very thorough competition commission investigation," he said.

William Morris, managing director of SSE, which has announced an 8.2 per cent price rise, said he regretted having to increase bills for customers, who were "struggling to maintain their budgets".

Transport costs had increased by 10 per cent, while the Government's environmental schemes had risen by 13 per cent, he said.

"We would like to see those costs taken off the customers' bills and onto taxation. We welcome the Government's decision to review that."

Morris said that companies would reduce bills as quickly as possible if the Government decided to scrap the green taxes. Companies have estimated that bills could be cut by around £60 if the green taxes were axed.

Guy Johnson, external affairs director of Npower, which has announced average rises of 10.4 per cent, said the largest driver of price rises had been the cost of the so-called climate obligation on power firms.

The green taxes cover the period to March 2015, so the energy firms will have to fulfil a large part of their obligation next year, he said. "That was a concern when we were considering prices for next year."

An analysis by industry regulator Ofgem showed that, while the increases announced so far this autumn by some of the companies have averaged 9.1 per cent, wholesale prices have risen by 1.7 per cent – adding just £10 to the average household bill of £600.

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