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Energy sector should face independent review, says Which? Energy sector should face independent review, says Which?
(2 months later)
The government needs to launch an independent review of the energy sector similar to the Vickers report on banking as part of a bid to break the dominance of the big six power providers and rein in soaring household bills, according to Which?The government needs to launch an independent review of the energy sector similar to the Vickers report on banking as part of a bid to break the dominance of the big six power providers and rein in soaring household bills, according to Which?
The consumer group is also calling for Centrica, SSE and others to be prevented from controlling both power stations and retail supply businesses while it also wants all wholesale power deals to be published by independent brokers and closely monitored by the watchdog Ofgem.The consumer group is also calling for Centrica, SSE and others to be prevented from controlling both power stations and retail supply businesses while it also wants all wholesale power deals to be published by independent brokers and closely monitored by the watchdog Ofgem.
These and other recommendations are contained in a scathing new report, titled The Imbalance of Power: Wholesale Costs and Retail Prices, which followed a year-long investigation and unearthed conflicts of interest, a lack of transparency and flimsy price reporting systems which have left consumers with "little confidence" that gas and electricity charges are fair.These and other recommendations are contained in a scathing new report, titled The Imbalance of Power: Wholesale Costs and Retail Prices, which followed a year-long investigation and unearthed conflicts of interest, a lack of transparency and flimsy price reporting systems which have left consumers with "little confidence" that gas and electricity charges are fair.
The Financial Conduct Authority, the City regulator and Ofgem are already looking into allegations of wholesale gas market rigging highlighted in the Guardian, but the consumer group claims this problem and others mean a wider commission is urgently required.The Financial Conduct Authority, the City regulator and Ofgem are already looking into allegations of wholesale gas market rigging highlighted in the Guardian, but the consumer group claims this problem and others mean a wider commission is urgently required.
"Hard-pressed consumers consistently tell us that the spiralling cost of their energy bills is one of their top financial concerns. Suppliers often blame price rises on an increase in wholesale costs, but it is impossible to work out if the price we're paying is a fair one," said the Which? executive director, Richard Lloyd."Hard-pressed consumers consistently tell us that the spiralling cost of their energy bills is one of their top financial concerns. Suppliers often blame price rises on an increase in wholesale costs, but it is impossible to work out if the price we're paying is a fair one," said the Which? executive director, Richard Lloyd.
"The government and the regulator are taking steps to reform the retail market and increase efficiency but more must be done. The government should commit to an independent review of the wholesale market and also ensure that new energy generation is properly scrutinised and brought forward at the lowest cost for consumers," he added."The government and the regulator are taking steps to reform the retail market and increase efficiency but more must be done. The government should commit to an independent review of the wholesale market and also ensure that new energy generation is properly scrutinised and brought forward at the lowest cost for consumers," he added.
Evidence obtained by Which? suggests that allowing companies to put supply and generation businesses under a single management and governance structure impedes competition and increases consumer prices.Evidence obtained by Which? suggests that allowing companies to put supply and generation businesses under a single management and governance structure impedes competition and increases consumer prices.
Ring-fencing supply business and increasing their separation from the upstream power businesses "should counter the natural conflict of interests within these large vertically integrated energy companies".Ring-fencing supply business and increasing their separation from the upstream power businesses "should counter the natural conflict of interests within these large vertically integrated energy companies".
This would encourage new independent power providers to come in and help supply businesses seek out better prices for their customers. It should also improve customer trust both in the price and underlying market while leading to greater volumes being traded on the open market.This would encourage new independent power providers to come in and help supply businesses seek out better prices for their customers. It should also improve customer trust both in the price and underlying market while leading to greater volumes being traded on the open market.
This in turn should improve the quality and quantity of price information that can be transferred into more robust price indices, argues the consumer group, which believes that much better quality and quantities of publicly available wholesale market information is desperately needed. Until this happens, Which? says "it will not be possible to assess the real level of competition in wholesale markets, evaluate the efficiency of retail prices and design the most effective interventions".This in turn should improve the quality and quantity of price information that can be transferred into more robust price indices, argues the consumer group, which believes that much better quality and quantities of publicly available wholesale market information is desperately needed. Until this happens, Which? says "it will not be possible to assess the real level of competition in wholesale markets, evaluate the efficiency of retail prices and design the most effective interventions".
Which? wants to ensure that the majority of wholesale energy trading that is done bilaterally and "over-the-counter" rather than through formal exchanges is more transparent.Which? wants to ensure that the majority of wholesale energy trading that is done bilaterally and "over-the-counter" rather than through formal exchanges is more transparent.
The prices for gas and electricity deals have up until now largely only been collected and published by journalists working for price reporting agencies (PRA) such as Platts, Argus and ICIS-Heren.The prices for gas and electricity deals have up until now largely only been collected and published by journalists working for price reporting agencies (PRA) such as Platts, Argus and ICIS-Heren.
But this system has been badly undermined by revelations from a former ICIS price reporter published by the Guardian that the system is open to abuse while oil companies such as Total of France have told a recent investigation by IOSCO, an association of organisations that regulate the world's securities and futures markets, that PRA prices are unreliable.But this system has been badly undermined by revelations from a former ICIS price reporter published by the Guardian that the system is open to abuse while oil companies such as Total of France have told a recent investigation by IOSCO, an association of organisations that regulate the world's securities and futures markets, that PRA prices are unreliable.
Which? is also keen that Ofgem is much more actively involved in the comprehensive monitoring of the wholesale market and of its relationship with retail prices. The big six have repeatedly justified retail prices being increased because of changes in the wholesale values but critics say this link is not always clear to discern.Which? is also keen that Ofgem is much more actively involved in the comprehensive monitoring of the wholesale market and of its relationship with retail prices. The big six have repeatedly justified retail prices being increased because of changes in the wholesale values but critics say this link is not always clear to discern.
In a separate report – The Imbalance of Power: The Challenge of Decarbonisation – the consumer group argues that the government is not doing enough to ensure that power companies do not use government policies in place to tackle climate change as an unfair excuse to pass on household bill increases.In a separate report – The Imbalance of Power: The Challenge of Decarbonisation – the consumer group argues that the government is not doing enough to ensure that power companies do not use government policies in place to tackle climate change as an unfair excuse to pass on household bill increases.
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