Energy UK conference - trust and consumer engagement
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Speech by Amber Rudd to the Energy UK conference.
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Today I want to talk to you about trust and consumer engagement in the market.
I don’t think it would be controversial to say that energy companies do not come high on most people’s list of trusted organisations.
Over the last few years wholesale energy prices have increased, which of course means energy bills have risen.
Never a popular move.
However, more recently, we are seeing a significant fall in the wholesale price of energy with gas prices falling and a continued downward trend.
Now I understand that many energy companies buy their electricity and gas in the forward market and need to take a long term view in order to make important big investments in our energy markets.
But rightly or wrongly people don’t feel that energy companies are always being honest about what makes up the cost of their energy bills.
Consumers are understandably asking questions.
When they see the gas price falling and wonder why this price cut is not being passed onto bills.
Or when there’s been a mild winter and yet the cost of energy bills either continue to rise or stay the same.
Now I know that this mistrust isn’t just confined to energy companies.
People are often just as mistrustful of politicians and government has a role to play here: we also add costs to bills through our own environmental and social levies.
Yet we have acted to address these costs.
Last winter, we took £50 off the average energy bill by reforming these policies and we are ensuring that they are properly targeted at those who need it most.
But I want the energy companies to be part of rebuilding trust in the cost of energy too.
And this means working harder to deliver a level of customer service that customers deserve and bringing forward competitive energy tariffs.
I want to start by talking about the changes we are putting in place to help rebuild consumer trust, boost consumer engagement and drive more competition and choice in the energy market.
I mentioned that rising energy bills were a huge concern to people.
The results of DECC’s latest public attitudes survey in August this year showed that 35% of people are worried about steep rises in energy prices.
And this is in the summer – not a time when people are particularly focused on energy bills!
Looking back to DECC’s April survey results 49% of households said they were fairly or very concerned about paying for their energy bills.
Yet despite this concern, until recently, switching rates had been in decline.
Limited choice of suppliers in the domestic energy market helped fuel distrust and left consumers feeling less inclined to switch.
We’ve all heard people say, fair or not, what’s the point in switching supplier, they are all the same.
This is now changing with the growth of new independent challenger suppliers – which has contributed to the creation of a more diverse, dynamic and competitive market.
Today, we have 19 independent suppliers in the market.
So consumers now have more choice than ever before. And they are beginning to exercise that choice.
Indeed, last autumn/winter we saw a large spike in people moving supplier – up 34% for electricity and 43% for gas compared to the previous year.
In July, Energy UK’s own figures showed that over two million customers were buying their electricity from independent suppliers – with more than one million of these switches occurring in the last year.
And today I can announce that the latest figures from an Energy UK commissioned report show that 9% of the dual fuel market is now served by medium sized to small suppliers (as of 31 July 2014).
This is the best this has been since the late 1990s.
Following the Prime Minister’s commitment to put everyone on the cheapest tariff to suit their needs, we can clearly see that Ofgem’s retail market reforms are making the market simpler and clearer to navigate.
And providing consumers with greater transparency, including telling a customer on their bill if there is a tariff which would be cheaper for them, are important steps in rebuilding trust.
Energy UK’s My Energy Credit campaign to encourage former customers who have switched or moved home to get in touch with their former supplier to reclaim any credit they are owed is another step in the right direction.
I believe with initiatives like this, combined with an increasingly competitive market and Ofgem’s reforms, we have the foundations upon which to start to rebuild trust in the sector.
We have also taken powers through the Energy Act to provide consumers with further confidence that if energy companies play outside the rules they will be penalised, fined and required to directly compensate consumers who have lost out.
And to provide additional reassurances, we have introduced criminal sanctions for any energy company found guilty of manipulating the market and harming consumer interest.
Now I am a Conservative and naturally skeptical of unnecessary market intervention but this is the proper way for Government to intervene. To set rules that consumers can have confidence in and to enforce them properly.
Providing the right competitive framework will help to ensure that investment into our energy market continues to flow, that industry can grow and that the markets delivers for consumers.
This Government set up the annual Competition Assessment, and as a result, the entire sector has been referred to the Competition and Markets Authority.
The investigation provides an important opportunity to “clear the air” and take a proper look at many of the big concerns that consumers have.
And I would urge everyone – including the Opposition – to trust the independent CMA process and put short term political opportunism to one side.
Yet we also know that customer service is a real issue that should be corrected right now.
And the industry cannot wait until the CMA inquiry concludes in 18 months’ time to win back consumer trust.
Customers should expect to be billed correctly, today.
They should expect any errors to be dealt with quickly and effectively.
They should be able to reach their supplier on the phone easily.
They should expect a prompt response to an email or letter.
This is basic stuff. It’s the least customers should be able to expect.
Yet according to the Energy Ombudsman, the number of complaints it received last year that had not been resolved by the supplier, were up massive 132% on the previous year.
82% of complaints to the Ombudsman were about billing issues – disputed charges, inaccurate bills and customer service.
According to the latest research by Which? average customer service waiting times have increased since last year and existing customers are not being prioritised.
You really need to sort this out!
If you want to win customers, you can’t afford to sit back. Your companies must prove yourselves on price and service if you want to remain competitive.
I mentioned that already consumers are showing that they are voting with their feet. They are attracted by cheaper prices and improved customer service from some of smaller suppliers.
We’ve seen small suppliers gain substantial business on the back of last year’s high price rises.
But I am encouraged by recent figures showing the many of the larger companies are fighting back with better tariffs with five of Uswitch’s top ten energy best buy table coming from largest suppliers.
I would encourage people to switch to get a better deal from companies who don’t deliver on price or on good customer service.
And I will do everything I can to enable that choice.
Yet I also recognise that we do need our energy companies to be profitable.
The energy industry is vital to the UK – you are major employers, delivering big investment and providing an essential public service.
You need to be profitable so that you can invest in our energy infrastructure, secure the energy supplies of the future, develop more energy efficient technologies, create jobs and pay taxes.
Without investment, we risk a return to the lights going out.
I am also clear that the role of Government is not to fix prices.
Indeed, the price freeze proposal put forward by Labour is already having a detrimental impact on investment – with some reports suggesting a £3 billion shortfall in investment in the energy sector over the past year.
And a price freeze would ultimately drive up costs for the very consumers Labour say they are trying to help.
As evidenced by the fact that the Chief Executive of one of the biggest energy companies recently admitted that his firm had not reduced energy bills precisely because of the price freeze threat.
Instead, we know that the best way to keep bills as low as possible for the long term is to reduce energy waste and drive competition and choice.
On a more positive note, I am encouraged by the progress the industry is making to reduce the time it takes consumers to switch energy suppliers.
Energy UK has been at the forefront of this work. The industry is on track to halve switching times by the end of this year and all of Energy UK members have committed to delivering this.
The Government’s midata programme is also empowering consumers by enabling them to easily view and access data about their usage and the tariff they are on.
Energy companies have led the way on this with the 7 largest suppliers already providing their domestic customers with secure access to this data electronically for them to view and download.
We now want to take this a stage further and enable this data to be provided in an automated way to third parties.
This means consumers will be able to easily access an accurate tariff comparison based on their own consumption from anywhere and at any time.
It will also mean the potential for new, innovative services to emerge which enable consumers to use their data to find the deals, products and services best suited to their needs.
Midata and our proposals to require QR codes on bills, will make switching not just faster but easier for consumers.
And looking further ahead Ofgem has consulted on its roadmap for moving to next day switching with decisions due at the turn of the year.
We’ve also been working to make the market fairer and more transparent for micro businesses.
I welcome Energy UK’s members’ commitment to make back billing fairer, improve the contract termination process and change contract continuations arrangements.
In addition my Department has also recently amended the legislation that governs access to the Ombudsman’s Service, so that more businesses will have recourse to the service, if they are not able to resolve their complaint with their energy provider.
So we are improving the industry processes, making the market fairer and giving consumers more tools to help them switch, but we know that vulnerable consumers are likely to encounter greater barriers to engaging in the energy market.
Including not always being able to interpret energy information correctly and not having access to the internet to take advantage of cheaper deals.
That is why we created The Big Energy Saving Network programme which provides training for and grants funding to trusted energy advice ‘champions’ from community and third sector organisations.
These ‘champions’ recruit additional volunteers who together, help vulnerable consumers in Great Britain take action to save money by switching and taking up offers of free or low cost energy efficiency.
Last winter the Network funded around 150 ‘champions’ and over 500 volunteers who reached over 90,000 consumers.
This winter we have already appointed around 170 ‘champions’, who have just completed their training.
However, I would also like to see energy supplies with Pre Payment Meter customers go further to do everything they can to make sure the most vulnerable of consumers don’t miss out on the £12 rebate.
But we also know that reducing energy waste plays a crucial role, which bring me to my final point: bills are not just about the tariff and the energy price.
The other part of the equation is the amount of energy that is consumed and we know that saving energy is the best long term way for people to bring down their bills – for good. Use less, pay less.
Yet the UK has some of draughtiest, least-efficient housing stock in Europe, meaning it is essential that we improve the energy efficiency of our buildings.
This is why we have the most ambitious efficiency strategy of any government – we are calling time on the waste of energy in every home up and down the country.
So far, over three quarters of a million households have had energy efficiency measured installed thanks to the Energy Company Obligation (ECO) and the Green Deal.
That is three quarters of a million households who will be permanently warmer this winter.
And from a very small start in 2010, over a million people (half a million homes) now go to sleep at night with a solar panel on their roof.
We are also working to get a better deal for consumers by giving people greater visibility and control of the energy they are using.
That is why we are working with you to roll out 30 million smart meters to homes and small business sites by 2020.
Smart metering is an investment programme to modernise our outdated metering system and bring it into the digital age – some consumers still have meters based on technology that is over 100 years old.
The behaviour changes that smart meters have the potential to unlock will be profound.
Smart meters will also put power into the hands of consumers, bring an end to estimated billing, help people understand their energy use, and let them choose the right tariff for them.
Some energy companies have already started rolling out smart meters and I am very encouraged by this. And I would urge all suppliers to grasp the opportunity to provide customers with new services and products such as appliances that respond to changes in energy prices and sophisticated home energy management systems.
So to conclude. There’s no denying trust in the sector is low.
Ofgem’s reforms, and our increasingly competitive and diverse market do give us some foundations on which to build.
And the industry is already working to improve some of its processes.
But we must not forget to get the basics right.
This means answering the phone and putting right problems quickly. It means finding out what customers really want and providing that service.
It means bringing forward competitive energy tariffs.
And it means grasping opportunities to provide new services and innovative products, as we move to a smarter energy world.