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Small Businesses suffer at the Hands of the Energy Giants

By 4th September 2011February 15th, 2022No Comments

 

 

Posted by:
John & Denise Wilson

Following similar announcements from some of the other big six energy suppliers, I notice that Energy Secretary Chris Huhne took an unexpectedly tough line in his response to Scottish and Southern’s statement of its intention to raise prices last month by reportedly saying this was “disappointing”. Go Chris, fighting the good fight for the embattled consumer! Disappointing is something of an understatement methinks compared to the typical reaction to the circa 18% increase in gas prices and 11% increase in electricity prices that will be impacting on bills from this September. I shouldn’t mock though – I know he’s had big problems lately getting his ‘points’ across… (allegedly)

The energy companies are citing increases in wholesale prices as the reason for the latest rises, driven in part by world events such as those in Japan and North Africa/Libya. But it seems to many that they have been making excessive profits at their customers’ expense and there have been calls on the Government and the Regulator (OFGEM) to act. Dumfries and Galloway MP Russell Brown has said that this explanation given by the energy companies “rings utterly hollow” because “wholesale gas and electricity costs are over a third cheaper than in 2008 but the energy companies are charging their customers hundreds of pounds more.” And it seems like OFGEM might at last have been listening. In March this year the regulator published the findings of its ‘Retail Market Review’ – an investigation it started towards the end of 2010 into the markets for electricity and gas for households and small businesses in Great Britain.

Despite being funded by the energy companies, I think OFGEM might have found its teeth at last with its own press release summarising the findings from the review being headed “Supply Companies Failing Consumers: OFGEM Proposes Radical Overhaul”. Among the criticisms it levels at the energy companies are that competition is being stifled by a combination of tariff complexity, poor supplier behaviour and a lack of transparency. Interestingly, it raised concerns that suppliers were not adhering to standards of conduct for small business customers. Importantly, it also found that a lack of effective competition meant that there was evidence that suppliers are putting up prices more quickly in response to wholesale price rises than they are cutting them when wholesale prices fall. Gotcha!? Well, maybe. The review has been undergoing a consultation period to give the industry and others the opportunity to provide feedback on OFGEM’s analysis and their proposals, which included reforms centring around price simplification and a breaking of the power of the big six suppliers over the wholesale market. In a further gnashing of teeth, OFGEM’s Chairman, Lord Mogg threatened that if the energy suppliers frustrated reforms, they risked ending up at the Competition Commission.

Whatever the final outcome of the OFGEM review, it seems likely that higher prices are with us for at least the short term and, I’d bet, will be higher again in the medium term given that the UK is so heavily dependent on oil and gas from volatile parts of the world. Although many politicians have ‘warmed’ to the idea of nuclear energy, or are now comfortable at least talking about it in terms of it providing part of the solution to the country’s energy security problem, it takes well over 10 years to construct a new nuclear power plant. Add to that the years it is likely to take to finally get agreement to actually building them (let alone finding suitable locations for them – we all know that this will take NIMBYism to a whole new level!) and it looks like we might be facing higher prices in the longer term as well!

So, what’s the best course of action? Finding ways of saving energy is a good place to start and the Government’s Business Link website (www.businesslink.gov.uk) offers advice on a number of measures that can be taken. Then there’s the question of whether to switch supplier or maybe take one of the fixed rate tariffs that are being offered. Either may prove advantageous but bear in mind that rates and terms vary and watch out for catches. Remember service levels count too, the cheapest may be false economy if problems take time and effort to resolve.

For many businesses, hunting down the best deals (and fending off myriad suppliers’ and brokers’ telephone offers), whilst beneficial in the fight to find cost savings, can prove to be a time consuming task and something that takes the focus away from the company’s core business activity at best. But for many small and medium sized companies, who don’t necessarily have the available resource to specifically devote to doing it, it is simply impractical to do knowledgeably and thus cost-effectively . As such, getting advice from a specialist in this area is likely to prove invaluable. Caveat Emptor!