Trust in the energy market is being undermined by a lack of transparency about profits being made by companies, MPs warned today.
The Energy and Climate Change Committee also criticised the energy regulator Ofgem for not taking enough action to tackle the problem and restore consumer confidence.
Ofgem was urged to “use its teeth” more often and force energy firms to show they are “squeaky clean”, one MP on the committee said.
The MPs made a series of recommendations, including making energy bills easier to understand and for prices to be compared with those of other companies.
There were “serious shortfalls” in the way energy companies communicated with customers, although improvements have been made, said the report.
Poor communication on why energy prices have gone up has resulted in “deep mistrust” from customers, said the committee, adding that the small number of people switching suppliers suggested the market was not as competitive as it could be.
Speaking on behalf of the committee, Liberal Democrat MP Sir Robert Smith (West Aberdeenshire and Kincardine), said: “At a time when many people are struggling with the rising costs of energy, consumers need reassurance that the profits being made by the Big Six are not excessive.
“Unfortunately, the complex vertically integrated structure of these companies means that working out exactly how their profits are made requires forensic accountants.”
“Ofgem should shine a brighter light on the internal structure of these big companies.”
The report also reprimanded the Government for not doing enough to help the millions of low-income families living in poorly insulated homes, struggling in “fuel poverty”.
“Spending on the problem has been cut in England and some of the Government’s fuel poverty programmes appear to be in “hiatus“, it was reported.
The MPs argued that to help protect the most vulnerable, more programmes should be funded through direct taxation rather than levies.
Fuel poverty charity NEA welcomed the report, saying that current measures to address the level and depth of fuel poverty did not constitute an “ambitious strategy.”
External affairs manager Peter Smith said: “It is therefore crucial that in the coming months the Government accept there is a strong need to address well documented deficiencies and ensure that there is adequate and proportionate assistance which is accessible to low income vulnerable households to protect them from rising energy costs.”
Which? executive director Richard Lloyd said: “Hard-pressed consumers consistently tell us that the spiralling cost of their energy bills is one of their top financial concerns, with energy companies trusted by fewer than a quarter of their customers.
“People will not feel confident that they are paying a fair price for their energy unless prices are simplified and the costs that make up our energy bills are open, transparent and subject to robust scrutiny.
“The Government and regulator must do more to rebuild trust in the suppliers and to keep prices in check.”
Ofgem’s senior partner for markets, Rachel Fletcher, said; “Ofgem welcomes the publication of the Select Committee’s report on energy prices, profits and poverty. We will consider and respond to its findings as part of our ongoing work to ensure that companies’ statements are clear and accurate.
“We share the committee’s goal of restoring consumers’ trust. This aim underpins our reforms which seek to get energy companies to deal with consumers in a simple, clear and fair way.
“We agree with the committee that suppliers have been poor at communicating with their customers. That is why Ofgem has taken the lead in pursuing transparency across all sections of the energy market. Ofgem has made energy companies produce yearly financial statements, which have been reviewed twice by independent accountants and found to be fit for purpose.”
Energy and Climate Change Secretary Edward Davey said: “We are doing all we can to help consumers keep their energy bills down and reduce the number of people in fuel poverty.
“We are using the Energy Bill to ensure that all households will be able get the best deal for their gas and electricity as soon as possible. This means getting people off poor-value dead tariffs, cutting the number of tariffs and giving consumers clear personalised information on their bills so they can compare and switch supplier.
“Our policies to support renewable energy and reduce energy waste are insulating consumers from the rising cost of fossil fuels. And by 2020, our analysis shows household energy bills will on average be £166 lower than they would be if we did nothing.”
Shadow Energy and Climate Change Secretary Caroline Flint said: “This report is yet more evidence that Britain’s energy market is not working in the public interest and that Ofgem is failing consumers. Time after time Ofgem has ducked the opportunity to get tough with the big energy giants. That is why Labour have said we would abolish Ofgem and create a tough new watchdog with powers to force energy companies to pass on price cuts and clamp down on abuses by the energy giants.
“Record energy bills are squeezing household budgets and pushing millions of people even deeper into fuel poverty, but out of this year’s Energy Company Obligation budget of £1.3 billion, less than half will go to people in fuel poverty.”
Friends of the Earth’s energy campaigner Guy Shrubsole said: “MPs have hit the nail on the head – more needs to be done to stop Big Six profiteering at the expense of hard-pressed households and the planet.
“The energy companies continue to rake in huge profits while the Government fails to insulate our heat-leaking homes and keeps us hooked on the gas that’s sent our fuel bills spiralling.
“Ministers must set a clean power target to make the big energy firms invest in affordable renewable energy – and open up the market to communities generating their own renewable power from wind and solar schemes.”
Adam Scorer, Consumer Futures director of policy and external affairs said: ’It may make Decc, Ofgem and energy firms squirm when they read it, but we all need to pay attention. Policy failures in this market translate very quickly into serious problems for households who have been hit by 40% and 20% rises in gas and electricity prices since 2007.
“Despite numerous reviews and reforms in the energy market, both the behaviour of firms and the policy framework have failed to address the consequences of higher prices and a fundamental lack of consumer trust.”
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