Just two and a half weeks after energy industry lobbyists, Energy UK, threatened higher bills and power cuts and just three days after the National Grid joined forces with warnings of winter blackouts if investment isn’t increased, SSE is the first of the Big Six to puts the threats into action: hiking dual fuel bills a whopping 8.2% and slashing all investment in new power plants until after the next election.
Blaming government social and environmental levies for a third of the price hike, SSE‘s chief executive, Alistair Phillips-Davies, told The Telegraph today that energy bills will keep on rising for the next decade, but would fall by £110 overnight if the levies were axed. Blaming the freeze in new investment on the “acute political uncertainty” around Labour’s threat to the Big Six‘s power, Phillips-Davies seems to be making us an offer we can’t refuse in a low tone of voice: accept the deal the Big Six are offering or we’ll have to punch your lights out!
Supporting his boss’s position on this lunchtime’s BBC News, SSE‘s Director of Customer Services, Tony Keeling, said:
Wholesale prices have gone up this winter, 4% compared to last winter. But it isn’t just wholesale prices. Actually, there are two other factors that need to be considered. The cost of getting energy to people’s homes has gone up 10%. And these government schemes, which actually account for about 10% of everyone’s bill, £110 a year for the average customer, has gone up 13%. And that’s what we think we should do something about.
Oh well, that’s OK then. The 13% increase in government schemes is three times more than the 4% increase in wholesale prices, so the government levies do seem mainly to blame.
Except that’s not exactly how the energy cookie crumbles is it? After seeing how Energy UK played so fast and loose with the numbers on Channel Four News a couple of weeks ago we thought it might be worth checking SSE‘s sums.
According to SSE‘s website, this is how the costs of the average dual fuel energy bill add up:
Coincidentally (?) the energy regulator, Ofgem, released a breakdown of the average dual fuel bill on Monday. So, how do SSE’s numbers compare with Ofgem and Energy UK?
|COST BREAKDOWN OF AVERAGE DUAL FUEL BILL (£ per £100)|
|Social & Environmental||8.00||9.00||–|
SSE‘s wholesale costs are 13% higher than Ofgem‘s. But in their press release, Understanding energy prices, on Monday Ofgem did make a point of saying:
“actual [wholesale] cost suppliers face could be higher or lower depending on how effectively they procure their energy. This is an area where they compete.”
So it seems SSE haven’t been procuring their energy very effectively. But with operating costs 50% lower than Ofgem‘s, they seem to be running their organisation much more efficiently, which is some compensation. The numbers in the remaining four categories are almost exactly the same as Ofgem‘s, and they do add up to 100%! So now we can use the cost increases SSE‘s Director of Customer Services, Tony Keeling, gave the BBC this lunchtime (above) to calculate how much they’ve added to the average bill:
|SSE: COST INCREASES PER £100 BILL|
|£ Current||% Increase||£ Increase|
|Social & Environmental||£8.00||13%||£1.04|
|Total Extra Cost||£5.52|
|Not Accounted For||£2.68|
Well now. That can’t be right, can it? According to those calculations, government levies account for less than an eighth of the price hike, which is considerably less than the third SSE chief executive, Alistair Phillips-Davies, claimed. And total increases from wholesale, network and social & environmental costs add up to only £5.52, leaving £2.68 unaccounted for. So it looks like SSE are marking-up the real cost of their extra expenses by nearly 50%! And they don’t call that profit !??!!?
None of the experts the BBC interviews seems to have picked up on this. Which does make you wonder. If they haven’t spotted such an obvious discrepancy, does that mean there’s something wrong with our sums?
If anyone was going to check SSE‘s numbers you’d think it would be the energy watchdog Ofgem. We do pay them £50m a year to regulate the energy industry after all. Surely at least one their 360 employees would have been assigned to check SSE‘s sums?
Unfortunately the watchdog seems to be asleep in the yard. No Ofgem spokesperson appears on the television news and no statement appear on their website. Except … hang on a minute … what’s this:
Customers contacted by SSE were exposed to misleading statements, inaccurate and misleading information on SSE’s charges and misleading comparisons between SSE’s charges and the costs with other suppliers. These failures meant that many customers were unable to make well informed decisions about whether to switch to SSE and about comparing products in a competitive market, and they were exposed to the risk of choosing a more expensive energy deal.
The level of fine reflects the seriousness and duration of breaches, the likely substantial harm that they have caused and the likely gain to SSE.
Misleading statements and misleading comparisons leaving customers unable to make well informed decisions. Isn’t that exactly the kind of thing we’ve discovered in SSE‘s price hike statements? So why are Ofgem and the BBC keeping schtum about it?
The funny thing is that, even though all the evidence is telling us that SSE are up to the same old tricks, we can’t really believe it.
If the BBC had asked the same hard questions about the SSE price hike as Bill Turnbull asked about SSE‘s fine in his interview with Ofgem‘s Ian Marlee on BBC Breakfast in April things might have been different. Unfortunately the BBC don’t make this clip available for embedding on other websites, but here are some edited highlights:
Marlee: Frankly this was a woeful catalogue of failures from the SSE management. They provided misleading sales scripts and frankly they allowed a culture of mis-selling to continue.
Turnbull: Would it be fair to say they were conning people on a grand scale then?
Marlee: In some ways worse than that. Their auditing processes were just not up to scratch.
Turnbull: There was another case with EDF last year when they had to pay a package of four and a half million pounds. Now that Ofgem’s been sorting out two of these energy companies it might lead some people to ask if the right people are running these businesses?
Marlee: Well we do have another three investigations underway actually into mis-selling which clearly we’re trying to sort as soon as we possibly can for consumers.
So it’s not just the processes they need to get right, it’s the culture. The management need to make sure that actually they’re taking all reasonable action to really make sure that consumers are getting the right information. Frankly the companies haven’t been doing what they need to be doing. They’ve made some improvements recently, but it’s not enough.”
If Ofgem and the BBC were taking all reasonable action to make sure consumers get the right information then it wouldn’t be difficult to figure out what was going on. But, because there’s no mention of SSE‘s fine for misleading and mis-selling in any of the BBC‘s coverage of the price hikes, we think there must be something wrong with our sums!
Could this be an example of what George Orwell tried to warn us about in Nineteen Eighty-Four? It’s not easy to keep believing that two and two add up to four when all our telescreens keep telling us it’s five!
So this is the mystery we have to solve now. Have we forgotten how to add up or are we really living in Nineteen Eighty-Four?
“Come, Watson, come. The game is afoot.”