Charlie Weston: Energy firms must be made send renewal notices to all
Nothing says market failure quite like the reluctance of electricity companies to respond to the price cuts announced by Electric Ireland last month. Its 1.2 million customers will see prices fall by 6pc in June.
The reduction will save the average family €57 over the course of a year.
On top of that, Electric Ireland is offering new discounts for existing customers who sign up for direct debits and e-billing.
These reductions come as wholesale gas prices, the main input for the production of electricity, have almost halved in the past year.
So far, only pay-as-you-go electricity provider PrePayPower has responded with standard unit rate cuts. The company, which uses pre-payment meters, has announced a 4.1pc cut to its standard unit rate.
On paper, we have a competitive energy market, with seven competing in the electricity supply market and five firms supplying gas to homes.
In practice, these firms are exploiting homeowners by overcharging most people. Their strategy is to argue that price discounts of up to 26pc, cash-back offers and deals on boiler servicing are available for those who are prepared to switch around.
But most people do not switch. People assume it is more complicated that it is and are bamboozled by the process of comparing the offers from the different suppliers.
An academic underpinning for this was provided by the Economic and Social Research Institute recently when research from what it calls its Price Lab found that consumers can't tell good deals from bad deals very well.
The ESRI research found that consumers are bad at accurately comparing products with multiple features. It said that independent comparison sites are one of the solutions to consumer confusion.
Savvy consumers who make a switch can save €200 a year on electricity. The problem is that once you came to the end of your 12-month deal you generally revert to expensive 'standard' rates again.
That's because new customer discounts only last for one year and then suppliers roll customers on to their more expensive standard prices.
One simple way to rectify this would be for the Commission for Energy Regulation to make it mandatory for energy suppliers to give everyone a one-year contract, just like insurance companies are required to do.
This would require them to send out renewal notices every year and have to seek permission to extend the contract.
They would have to detail how any one-year discount had come to an end.
They would also have to tell all of those who have never switched, that they could avail of a better deal.
Now that would represent a real pro-consumer move.
Expect the energy companies to fight it tooth and nail.
Sunday Indo Business