Monday, June 13, 2011


Which is the lesser evil: starving or freezing? That will be the choice facing some pensioners this winter as fuel prices soar higher than ever before.

Very few old people starve to death and very few die of cold. But it happens.

And you can be certain the latest price rises announced by one of our six monopoly gas and electricity companies will make matters worse.

Most of us won’t be faced with quite the same life-or-death dilemma but a staggering increase of 19 per cent, or £200 a year, does make you wonder how the power companies are allowed to get away with it.

There are only six companies and between them they represent a price-fixing cartel which is supposed to be policed by a quango called Ofgem, the Office of the Gas and Electricity Markets.

Ofgem is a £50 million-a-year organisation which claims: “Protecting consumers is our first priority.”

This is, of course, the usual corporate bull. It claims to regulate “the monopoly companies which run the gas and electricity networks”.

But instead of tackling what Ofgem itself calls a monopoly, it busies itself worrying about global warming and “helping the gas and electricity industries to achieve environmental improvements”.

All very nice and cosy – another neutered watchdog with no teeth.

No doubt the failure of Ofgem to protect consumers is one reason why foreign investors are so keen to buy up British energy companies.

Of the “big six” gas and electricity suppliers, only Centrica and Scottish and Southern Energy are British-owned.

E.ON is German so is NPower, Scottish Power is Spanish while EDF is French.

They clearly view this country as a profits goldmine and why shouldn’t they when the watchdog responsible for policing them is so hopeless?

Ofgem flounders around whimpering feebly: “We are concerned that energy companies still have not done enough to make the market work on behalf of consumers.”

And it trumpets as some kind of triumph the news that it has forced energy companies to give us 30 days’ notice of price rises. Whoopie-doo.

These companies don’t need to sit down in a room together to fix prices.

They simply wait for one of them to lead the way – as Scottish Power has done with its 19 per cent hike – then they all pile in afterwards.

There are price comparison websites and it’s easier to change suppliers than it once was. But they still manage to pull the wool over our eyes.

My own experience with Scottish Power is not unusual. Over the past 12 months, we were paying them £215 a month for gas and electricity.

At the end of the year, we got a statement telling us we were £574.49 in credit – in other words, we were over-paying by almost £50 a month.

To add insult to injury, they slipped into the statement the news that our monthly payments for the following year would be £231 a month – an extra £16 when we were already paying too much.

We called to complain and, immediately, without question, they offered to reduce the payments back to £215. But we tried E.ON and the bill is now £146.50 a month.

No doubt we are under-paying but I’d far rather owe money to my utility company than use it as an interest-free savings bank.

Many people don’t shop around and suppliers rely on consumer ignorance to boost their little profiteering scams.

Ofgem would no doubt claim credit for allowing us to switch suppliers. But the quango’s own statistics show what a feeble job it’s really doing.

It produces a quarterly report on energy prices which breaks down the customer’s bill into various components: the actual cost of the gas and electricity, VAT, environmental costs and other charges and the companies’ operating costs.

It then shows the profit per customer – what it calls the net margin – that the energy companies actually make.

According to Ofgem, in March this year – before the latest round of price hikes – they were making a profit per customer of £75 on an average fuel bill of £1,170 a year.

Back in March 2007 – only four years ago – the average bill was £955 and the companies only made a profit of £20 per customer.

In other words, our bills have risen 22 per cent which is bad enough. But energy company profits have risen 275 per cent per customer.

If Ofgem was doing its job, it would have already enforced a price cut of £55 per customer.

If the cost of producing gas and electricity has risen, it may be reasonable to expect the customer to pay more. But why should the profits of these companies be allowed to soar at the same time?

Of course, if you complain about excessive profits, Ofgem and its clients, the energy monopolies, will witter on about security of supply and investing in the future.

These are necessary evils and the industry is supposedly spending £200 billion over the next decade to secure our “low-carbon energy needs”.

That rather suits an ineffectual watchdog like Ofgem because boils down to a lot of hot air and wind.

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