Energy industry must be more transparent, say MPs

Energy price rises coupled with high profits, mis-selling scandals at power firms and a lack of transparency over bills have destroyed consumers’ trust in energy companies, a committee of MPs has said in a report that also criticises the sector’s watchdog for failing to take effective action.The energy and climate change select committee said consumer fears that price rises were out of step with the underlying cost of energy were valid, and the regulator, Ofgem, was not doing enough to ensure companies were open and transparent.They said the complex way companies were structured, with energy trading arms making money from buying and selling supply and operations selling services to business customers meant it required a “forensic accountant” to work out exactly how much profit firms were making on selling energy to consumers.Meanwhile a record number of people are now estimated to be in “fuel poverty”, previously defined as paying 10% or more of their income in energy bills. The government has said it is working to help improve draughty homes through measures such as green deal loans to households and a levy on the energy industry the energy company obligation to pay for energy efficiency measures for those on low incomes.The MPs called for greater transparency on bills and competition. Consumer groups such as Which? have questioned whether regulators are ensuring enough competition to keep bills down in a market dominated by six big players.Last year allegations emerged of price-fixing in the gas market, an investigation into which is ongoing. The practice of trying to sign up customers door-to-door has also come in for heavy criticism; several energy companies including SSE, EDF and British Gas suspended the practice after Ofgem handed out fines for malpractice.Energy suppliers including the German giant RWE npower have come under fire for paying little tax on their profits. The industry has said the cost of investing in new energy infrastructure about 200bn will be needed in the next decade to keep the UK’s lights on and move to a lower-carbon energy supply, according to the government has reduced companies’ taxable income.Sir Robert Smith, chair of the select committee, 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.”He called for Ofgem to “shine a brighter light” on the companies, which could involve breaking down their profits to show which come from different activities. The committee accused the watchdog of “failing consumers by not taking all possible steps to improve openness and increase competition” with its “relatively light touch approach”.John Robertson, a member of the committee, said: “Ofgem needs to use its teeth a bit more and force the energy companies to do everything they can to prove that they are squeaky clean when it comes to making and reporting their profits.”The outgoing chief executive of Ofgem, Alistair Buchanan, was criticised for announcing when he quit earlier this year that the UK faced a severe threat of blackouts as ageing power stations were taken off the grid and demand outstripped supply. Industrial consumers have been offered deals to turn off their factories at peak times to safeguard electricity for consumers. Critics said Ofgem should have foreseen this situation earlier and taken steps to ensure there would be no shortfall.Rachel Fletcher, senior partner for markets at Ofgem, said: “We agree with the committee that suppliers have been poor at communicating with their customers.

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