Are eight out of ten families 'ripped off by power firms'?

"8 out of 10 ripped off by power firms."

The Sun, 5 September 2012; also reported in other publications such as the Daily Mail.

Parliament has returned, the cabinet is reshuffled and kids are back at school. Surely this can only mean but one thing: summer's drawing to a close and autumn is on the way.    

As the nights draw in and the temperature drops, Britain's demand for fuel will inevitably increase and attention will turn, once again, to the cost of the key utilities across the country.

In fact, energy prices have been keeping the nation's journalists burning the midnight oil throughout the summer too, with key providers warning consumers that costs are set to rise over the coming months.

Today saw a new dimension added to the debate with certain outlets accusing energy companies of burdening their clients with additional costs to enable them to offer cheap deals to new customers — in effect a form of cross-subsidy among consumers.

In particular, the Sun claimed that eight out of 10 families were being 'ripped off by power firms' to the tune of £150 per year.  

But where are the figures coming from and are they reliable?

Analysis

According to the Sun, these figures were presented to MPs on the Energy and Climate Change Committee yesterday as part of a hearing on consumer engagement in energy markets.

Full Fact had a flick through some of the footage and soon learnt that much of the discussion centred on the propensity of the six largest energy companies (British Gas, E.On, Npower, EDF, SSE and Scottish Power) to attract new customers by offering low introductory energy prices before increasing the bill at a later date.

Reporting this, the Sun stated that Stephen Fitzpatrick, Managing Director of Ovo Energy (a smaller provider), told the committee that "85 per cent of Big Six customers were paying too much".

We contacted the firm's press office to see if they could tell us a little more, and were told that Mr Fitzpatrick did not cite this figure to the committee but referred to it in a press interview afterwards.

In fact, according to Ovo Energy, the original source was Labour MP (and committee member) John Robertson and thus, technically, it would seem that the Sun was incorrect in attributing it to Stephen Fitzpatrick (the paper does later go on to quote Mr Robertson).

Where did Mr Robertson's figure come from?

Leaving aside the ambiguous provenance of the Sun's claim, we got in touch with Mr Robertson's office to see if they could provide more details about its accuracy, although we've yet to receive a response.

However we did unearth the 'Online Money Saving Advice' published in April 2011 by Government's utilities watchdog, Ofgem, in conjunction with the Citizen's Advice Bureau, which migth shed some light on the claim.

According to this document, the majority of customers are inactive in the energy market and are thus missing out on the opportunity to make considerable savings. Specifically, Ofgem's research indicates that:    

"four out of five consumers are at risk of paying more for their energy than they need to. On average consumers who have not switched pay around £170 more for their energy."

The four fifths of consumers mentioned here tallies with the 'eight out of 10' found in the Sun's headline, although the amount these households are apparently losing out by is actually £20 higher according to Ofgem than it is according to the Sun.

If this is the source of the figure, we would however sound one note of caution. It doesn't necessarily follow that consumers are being "ripped off" by energy firms because they haven't switched to the cheapest tariff: some may choose not to do so, for example if they wish to stay on a 'green energy' tariff.

Conclusions

The first thing to note from this analysis is that, in contrast to the Sun's reporting, we were told by Ovo Energy that it's boss was not the source for the headline claim.

Unfortunately, we have been unable to get to decipher where, exactly, the figures in question (i.e. 85 per cent and £150 per year) are coming from, although we have traced them to Labour MP John Robertson, and we hope that his team may be able to fill in some of the blanks. We will of course update if we hear back from Mr Robertson.

However there are very similar statistics available from Ofgem, which would suggest that the proportions and costs quoted in the Sun are at least in the right ballpark. We do need to be aware however that according to Ofgem, this is the proportion of consumers who - for whatever reason - have chosen not to switch to the cheapest tariff.

While it is certainly true that the complexity of energy charging is often cited as one reason for consumers languishing on more expensive tariffs, there could also be others, such as some consumers wishing to purchase green energy, and it doesn't necessarily mean that all these households are being "ripped off" by their provider.

Image: Stevedepolo