Energy companies must come clean about their costs and the impact they have on bills

energy, personal finances

Author(s):  Reg Platt
Published date:  19 Dec 2012
Source:  Left Foot Forward

If we are to be sure consumers are getting a fair deal on their energy bills we need energy companies to come clean about their costs and what they pass on to consumers.

At Monday’s Fair Energy Summit the Secretary of State, Ed Davey, blamed energy companies for uncertainty that exists with the cost of his new energy efficiency policy, the Energy Company Obligation. With new evidence from IPPR showing that the cost of previous energy efficiency policies has been significantly lower than the government predicted, it is time for the suppliers to come clean about their costs and the impact they have upon bills.

When it is introduced in January the Energy Company Obligation (ECO) will oblige energy companies to improve the energy efficiency of homes in order to reduce emissions and tackle fuel poverty.

Speaking about the policy at the Fair Energy Summit Ed Davey, Secretary of State for Energy and Climate Change, said:

“One of the key difficulties in reaching estimates [of how much ECO will cost] has been the lack of transparency from the energy companies. They have not given us a clear picture of how much they were spending to comply with previous obligations… And we don’t know what costs they’ve been passing through to consumers.”

Ed Davey should take note of analysis in a new report by IPPR, Energy Efficiency: who pays and who benefits, which shines some light on the energy companies’ costs.

IPPR’s report shows that the suppliers’ costs for the energy efficiency obligation, CERT, may have been 40 per cent (around £14) less in 2008 than the government projected when it launched the policy. It is not clear if the energy companies passed this £14 saving on to consumers. The report also finds that the cost of CERT may have been lower than the government predicted up to 2011.

The energy companies have blamed rises in the cost of energy efficiency policies, including CERT, as one factor behind their decision to increase tariffs this winter. IPPR’s report shows that the cost of CERT has risen recently but that this is largely because the energy companies under-performed against their obligations in 2011 and has not had a major impact on bills.

The table below, taken from the report, shows the progress of the energy companies towards achieving the SPG sub-target within CERT, which directs support towards vulnerable households, in March of this year. The SPG target was introduced in April 2011 and must be completed by the end of 2012 meaning that the four suppliers with under-30 per cent of their target completed in March (British Gas, EDF, Scottish Power and SSE) had left themselves much to do to fulfil their obligations in time. In 2012, as these companies have sought to achieve their targets by finding large numbers of eligible customers within a decreasing time window, costs have risen.

Supplier

% of CERT SPG sub target achieved (March 2012)

BG

20.0

EDF

21.3

E.ON

62.0

Npower

47.6

Scottish Power

12.2

SSE

27.5

Source: Ofgem

Even if the cost of the SPG target has risen by 85 per cent in 2012, as one energy company has claimed, IPPR’s report shows that this will have added just 0.5 per cent to energy bills. This compares to recent tariff increases by the energy companies of 6 to 11 per cent. The cost of policies and the cost of transmitting and distributing energy have increased but by far the biggest factor pushing up energy bills is rises in the wholesale cost of gas.

If we are to be sure that consumers are getting a fair deal on their energy bills we need energy companies to come clean about their costs and what they pass on to consumers.

Ed Davey should force the energy companies to open up their books for scrutiny so that the true cost of CERT and the amount they have added to bills can be known. Mr Davey should then oblige the companies to provide detailed information on their costs for delivering his new policy, ECO, and this should be put into the public domain. Finally, the lack of transparency in the amount that the energy companies spend on wholesale energy, in particular when they do not buy it on the open market, must be addressed.

 
 

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Reg Platt, Senior Research Fellow