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The Martin Lewis Podcast - Episode Notes: An Energy Special!
Episode Overview In this special episode of *The Martin Lewis Podcast*, host Martin Lewis dives into critical discussions surrounding energy prices in the UK. The episode features interviews with Jonathan Brearley, the Chief Executive of Ofgem, and Greg Jackson, the CEO of Octopus Energy, focusing on current energy market challenges, pricing structures, and consumer impacts.
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Key Discussions and Insights
- Energy Price Cap
- Current Situation: The energy price cap increased by 10% in October, affecting 80% of homes in England, Scotland, and Wales.
- Default Tariff: Many consumers are on a price cap tariff, which is the default option unless they actively switch to a fixed or specialist deal.
- Advice: Martin emphasizes that staying on the price cap is not advisable and encourages consumers to seek fixed deals that might offer better value.
- Standing Charges
- Definition: Standing charges are fixed daily costs for having gas and electricity, which many consider unfair.
- Concerns:
- Moral hazard discourages lower users from cutting their bills.
- Unfair burden on vulnerable populations, especially the elderly.
- Prepayment meter users face additional challenges due to debt accumulation from standing charges.
- Regulatory Changes: A new dual price cap system will be introduced, allowing for a choice between lower standing charges with higher unit rates, aiming to provide better options for diverse energy users.
- Vulnerable Consumers
- Priority Service Register: Vulnerable customers need to be registered with their energy providers to receive necessary support.
- Importance of Communication: Consumers are encouraged to actively communicate their needs to energy suppliers to ensure they receive assistance, especially during outages.
- The Role of Ofgem
- Regulatory Function: Ofgem's role includes ensuring fair pricing, improving service standards, and maintaining infrastructure.
- Public Skepticism: Many consumers express distrust towards Ofgem, believing it favors big business over consumers. Jonathan Brearley explains the limitations and challenges faced by the regulator, especially amid geopolitical factors influencing energy prices.
- Energy Supply Chain and Pricing
- Market Dynamics: Energy market pricing is influenced by international factors, particularly the reliance on gas. The link between renewable energy costs and gas prices is criticized.
- Call for Reform: The episode emphasizes the need for reform in the energy market to alleviate consumer pricing burdens and address inefficiencies, particularly in the electricity market.
- Octopus Energy Insights
- Consumer Pricing: Greg Jackson highlights how Octopus Energy operates as a retailer and provides customer service, distinguishing their business from the more profitable segments of the energy supply chain.
- Market Inequities: While Octopus aims to keep prices competitive, they cannot control costs imposed by the broader energy market and regulatory structures.
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Key Takeaways
- Consumer Empowerment: Listeners are encouraged to actively seek better energy deals and understand their options to avoid the price cap.
- Advocacy for Change: There is a strong call for energy market reform to address standing charges and align pricing with the actual cost of energy generation.
- Vulnerability Awareness: Special attention is drawn to the needs of vulnerable consumers, urging them to utilize available support services effectively.
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Conclusion This episode of *The Martin Lewis Podcast* serves as an informative resource for consumers navigating the complexities of energy pricing in the UK. As energy bills remain a critical concern, Martin Lewis's discussions aim to empower listeners with knowledge and actionable insights to make informed financial decisions.
For more updates and to engage with financial discussions, tune in every Thursday.
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*Remember to verify any specific product details mentioned in the podcast, as they may have changed since recording.*
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:00BBC Sounds. Music, radio, podcasts. Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. Now, usually much of it comes from our BBC Radio 5 live show with Adrian Charles. And this one is extra special. Oh, yes, indeedy. Because I'm on a break, so it's a good excuse for a Best Bits pod. The producers have put together what they think are some of the most pertinent and still relevant elements of the podcast we've done so far this year. Let's just hope they're right. Though worth noting, if I do mention specific products, do be aware they could have changed, so double-check before you take any action.
0:42We don't want you listening to February's Best Buys once you're in August. And this week's pod should be energising, because it's an energy interview special. I'll speak to the boss of the Energy Ombudsman, who took your questions, including why do we pay more in the UK? And I speak to the boss of Octopus Energy, the UK's biggest energy retailer, asking about prices, smart meters and more. It's bound to be electric. Play the theme tune.
1:24We'll begin with a listen to when I put your questions to the chief executive of the British Energy Ombudsman, Jonathan Brearley. So let's start because it affects a lot of people. Energy bills, obviously. And talk us through where we are as you see it. OK, so the energy price cap that dictates the price 80 % of homes in England, Scotland and Wales went up by 10 % in October. Now, how do you know if you are on a price cap tariff? The price cap tariff is your default tariff. It's a tariff you've on if you've done nothing. It's a tariff you move to if your fix has finished and you haven't changed again.
1:58If you're not sure, you almost invariably are on the price cap. Unless you're on a specific fix or you've chosen some form of specialist tariff, you are on a price cap tariff. And that means that the price you pay is dictated by the man sitting across the desk from me right now by Ofgem. Firms can't go above that and most of them tend to price it exactly that. It was originally meant to be a safety net tariff. It was meant to be there to protect people who didn't switch. But since the energy crisis, very few people have switched. So we now have a quasi price regulated energy market. We hope we will move away from that.
2:32I call the price cap a pants cap. It is not one you should be on right now. Jonathan, the head of Offjump is nodding. Most people, we want you off the price cap. Yeah, look, absolutely. This is meant to be a backstop. So we'd like to see more people get back into the market and find better deals. And so go and get yourself a fix because on the huge balance of probabilities, I mean, 80, 90 % probability, you'd be better off getting yourself a fixed deal now than sticking on the price cap. but people have lost faith in switching. Then today, and the reason I suspect Jonathan is here, and it's great coincidence of timing, although I suspect it isn't a coincidence of timing, is that there was a big announcement on standing charges.
3:08Now, I have been leading the cries against standing charges. Standing charges are those locked-in daily charges that you pay just for the facility of having gas and electricity. I consider them to be a poll tax on energy, 340 quid a year typically, that you pay whether you use any energy or whether you don't. Now, there are three big problems with the standing charges. Number one, it's a moral hazard. It disincentivises lower users from cutting their bills because they can't save very much by it. Number two, it's unfair on those people, especially who only have gas central heating and they only put it on in the winter, which is many elderly people, because in the summer when they're not using it, their bill ticks, ticks, ticks with those standing charges every day.
3:52being charged. Number three, it's unfair on people who have prepayment meters, because if they lose it, just think about this. You lose your credit. You haven't got any more money left. You've not put the energy bills on. You go and try and top it up three days later. Well, you've got to pay the standing charges before you can get any energy. So the money you're putting in might not even cover you to get energy on it. So I have a problem with it. I'm going to preempt where we go on this because it's quicker if I do it. Ofgem has not been able to do what I wanted it to do, but I'm not for once going to blame them.
4:24What we needed to do to fix standing charges, the big problem is I'm saying they should be brought down and the price should be put on the unit rate. But many charities legitimately who look after disabled or ill people have been coming to you, haven't they? Yeah, absolutely right. Yes. Yeah. Yeah. They've been coming to you and they've been saying, hold on, we've got someone who's got an oxygen tent. They've got really high energy usage. We've got someone with charging an electric wheelchair for their children or a dialysis machine. We've got high energy usage. If you move the cost of the standing charge onto the unit rate, the amount that you pay for gas and electricity, you're penalising these people.
4:57They need to be protected. I think they need to be protected. He doesn't have the power to do that. Only government does, and government hasn't done it. So he, Jonathan, had to make a decision within Ofgem's unilateral realm. So it's actually followed a suggestion that I submitted in our submission to standing charges, which from next year, there's going to effectively be two price caps from firms. You have the normal one, and then you'll have one which has got no standing charges and a higher unit rate. Lower users will be better off on the no standing charges, higher unit rate tariff. Higher users will be better off on the existing price cap if you're on the price cap.
5:35But my question to Jonathan, and I asked him this privately, so I'll ask him publicly. This is the problem. The price cap is designed to be that safety net tariff for those people who do not switch but when we have two price caps therefore we are giving people a choice and the whole point is it was meant to be there for those people who don't make a choice who can't or are scared or don't want to make a choice so which price cap will they be on so look and i just want to talk a bit about how we've got to where we've got to as well as well as ask to answer that question because i as you know i talk to customers a lot directly you know the sorts of customers you mentioned so customers who have disabled children within their family or frankly customers who are still on believe it or not electric old-fashioned electric heating whose bills are hugely expensive would be affected badly unless we made this choice that we made that we laid out today now i think there's a debate about how you get onto the right tariff for you so the fundamentals are we think you should be able to choose so first of all anybody who wants to actively choose should choose but we're very open to the idea that actually some people might need some help from for example from their energy company to do so so the big debate is do we do that for everybody do we do that for vulnerable customers how does that work and how do you if you want to override that make a choice and all of that's through the consultation well you know i've told you what my view on this is if you're on a price cap you should be automatically defaulted to whichever one of the two price caps is cheapest for you i suspect we won't get there because the energy firms would fight that and it might change the maths so my minimum is vulnerable customers and those on the priority services register should have that default choice made for them.
7:12And there is such a register. Tell me about that. So look, we have many, many reasons why the energy industry should be identifying vulnerable customers. I mean, for example, you know, we have power cuts still today from some of the storms that we saw earlier in the week. We need those companies to know, out of everyone who's left, who really needs the most help. So we've raised the register. I understand that. So who puts the register together? How do you make sure you're on it if you need to. If you think you are vulnerable, call up your energy company and tell them and they will go through their vulnerability checklist.
7:42And there are very special rules for people who are on the priority service register about, you know, rules both on payment and on service level. You know, if you've got an oxygen tent that you need electricity to power, then continuity of service is pretty damn important for you. Just to add, particularly in situations like that, it's life-saving. Yeah, exactly. So, I mean, anybody out there who feels they've got kids under five, they've got any health conditions or they have elderly people in their home, get on this register because it makes a massive difference, not only in the extreme, but also on things like this.
8:16It's the big focus and the big news of the day. So let's start to talk a bit more about standing charges. I'm going to do something I've got here. This is from National Energy Action, a charity you'll know well and I know well that we work with. I'm pretty sanguine about what you've done because you followed a proposal I suggested. Sure. Right. They're much less happy. They are very worried about some of the more vulnerable people who are for the next year because this new dual standing charge option won't come in for next year. What's going to happen to them? So I'm going to read out a question from National Energy Action.
8:45Sure. Pre-payment households are especially affected by high standing charges. When their credit is being used up, standing charges accrue as a debt on the meter that must be cleared in full before accessing energy again. We know that the highest standing charges are the longer households are needlessly left without being able to use energy. What will offer Gemjoon now to make it easier for prepayment households to access energy when they need it most. So you understand the question? Sure, I do. I mean, let's talk about the rules we have in place right now. So I encourage anybody who feels that they can't top up their meter to make sure they get in touch with their supplier.
9:21we have something called additional support credit which is basically a form of a loan the company must give you to make sure you can get energy over that period where perhaps you can't afford it for a few days until a benefits payment comes in or your next sort of your wages come in so there are mechanisms already in place to make sure that you are looked after through that second thing we ask companies to do particularly for those who have smart prepayment meters and if i could just spend a minute on why we think smart prepayment meters are much better than the old system companies should be noticing if you're coming off supply often and they should be offering you the sort of help and support you'd expect for anybody who's struggling to pay their bills.
9:57So there's a number of things in place already. The reason why we want to take a bit of time over this is exactly the questions you're raising, Martin. How do we make sure that people are put on the right tariff, people don't feel forced into a place they don't want to be, and how do we make sure that if you're a high user, you're on a high standing charge, and if you're a low user, you're on a low standing What have the firms, how have the firms reacted to this dual price cut? So I think, you know, they're open to it. I think there's a lot of detail to work through. I think we heard Energy UK this morning worrying a bit.
10:25Which is the trade body that represents Energy Firms. Yes. So the trade body that represents those firms worrying a bit about the same question. How do we manage in a world where people don't engage? And that, I think, is going to be the critical part of our consultation. But I think they'll work with us. And remember, many of those companies called for low or no standing charges before this. we found a way to deliver it, as you say, within the constraints that we have. I should just say, I have chatted with the Secretary of State for Energy, Ed Miliband, on this, about that, you know, will you support vulnerable customers, which would enable you to bring the standing charge down for the main price cap too.
11:01I don't think that's off the cards. I just don't think it's been done yet. So I think there is still a chance that by this time next year, things may have changed. You've got a sense of that? Well, I mean, I can't talk about what we say to the Secretary of State, but I can tell you we've been saying for a long time now we think we need more targeted support for the vulnerable. We're working with government. We both want a social tariff, don't we? Well, I would like to see that seriously examined. So, yes, that's... That's regulator speak. That's regulator speak, but yes, a social tariff would say that vulnerable customers should automatically be put on a cheap tariff that they don't have to activate that would protect them from being inadvertent victims of a market mechanism.
11:37Can I just explain a bit about why we might think something like that might work? and the two things we've seen in the last couple of years. I'm going to agree because I've been championing it for a decade, but yes, go on. Two things we've seen in the last couple of years is, the argument against this is that, you know, that's what benefits are for. You pay it through the welfare system and that's it. But there are two things, I think, with energy. One is the same families can have very, very different energy needs. If you are one family in a well-insulated home and you're another family, exactly the same circumstances in a home that's poorly insulated, you have very different bills.
12:08And also, as we've seen over the last few years, the energy market moves much faster than the benefit system can respond to. So I think in whatever... And then the regulator responds to. Of course. But I think that, in a sense, we want to make sure we have a tariff that manages that much better for customers. I just want to go back a bit. I know it's a very basic question, and I hope you'll both forgive me, but what is the regulator for? And I say that neutrally. Some people are saying it, you know, putting it as a barbed question. So if the regulator didn't exist, right, you'd have a load of companies selling you fuel, selling you energy, and they could charge what they liked.
12:56And, you know, so the liberal economists might say, free market economists would say, well, and it'll find its level and the best and the cheapest will win out. I think you're being very nice. And I think we have a responsibility. You forgive me. We ask people for questions. And there were a substantial number of aggressive ones. I have discussed that with Jonathan beforehand, that I'm going to put some of those more aggressive ones to him because I think we have to reflect that feeling. So I'm going to ask the same question as Adrian, but from Ash. Why does Ofgem exist? They clearly only have big business interests at heart.
13:30So I need to start off by saying, And given the last few years, I completely understand why people are frustrated. You know, we've seen a market that without the government intervention would have gone up, made bills on average, got about four and a half thousand pounds a year. And it's important for me to try and explain what Ofgem can do and what it can't do as part of that. So when I look at what's happened and we look at where those changes came from, they come from a massively changing international gas market. Now, I think, Martin, if you look at our energy history over the last 15 years, something we did not get right collectively, government, the regulator, the industry, all of us, was the fact that as a country like Europe, we became dependent on a market where 40 % of that market was owned by one player from one country that was aggressive towards us.
14:16Now, that has meant we have drifted into this situation, which quite frankly, in some ways, it's surprising it didn't happen sooner. that country became aggressive towards us and that market power became a weapon to challenge what we were doing elsewhere over the war in ukraine now that created a huge amount of disturbance now we can't control that come back to your question adrian the regulators here for three things first of all on price we need to make sure although we can't control the costs that go into that cost stack we want to make sure they're fairly reflected in the price that's charged Secondly, we want to make sure the standards of service are improving.
14:53And thirdly, and really importantly, given what I've just said about Russia and the way that has impacted on a market, we need to make sure the infrastructure is built to make sure we get out of the situation we're in. Can I just come back on that third point? Then we'll talk about price and standards. I am really passionate about the government's approach to getting to 2030 and getting to net zero electricity in that time frame. and I'm passionate because I'm afraid I've got to be open. My background was in climate change before I came into energy. I'm passionate from a kind of global perspective but more importantly, if we are going to avoid what we saw in the last three years, we need to get away from that international gas market driving our bills and that's the way we're going to do it.
15:32Well, I mean, I had a question on exactly that from one of our listeners. Why is the cost of electricity generated from renewable sources still linked to the price of gas? So for most new renewables, is basically a fixed price for those. For the new offshore wind farms, we pay a fixed price. So during the crisis, those wind farms were actually paying money back to customers that they were getting from the market. There's an older set of renewables, which are based on basically the market price plus a subsidy. Those, we hope, will go away over time. But the new model is we don't do that. We give them a fixed price.
16:02What proportion of the market is on that newer model? So the newer model is since 2017. So I haven't got the percentage figures, but it'll be about, I'd say about a third to a half. So still the majority is still based on? So there's a lot based on the old system. There's a legacy. I just want to check one other thing. I think it's important because I get this about you a lot. So I'm going to, because I think this is, who do you regulate and who don't you regulate? Well, let's talk about, let's be frank, let's talk about where the profits are in the market. So we've seen over the last few years that companies like Shell and BP, for example, the companies that dig the gas up out of the ground and sell it, they were making very, very large profits at that time.
16:42The producers and the distributors. So the people that get the gas and bring it to our house. We don't regulate those. Those are part of an international market. Now, to respond to that, government did introduce a windfall tax, and that's for them. That's not for us. We regulate in different ways three parts of the market. So first of all, the retailers. Those are the energy companies that all of us see directly. So EDF, Eon, Octopus, Ovo, those sorts of companies. We also make sure the market works for the generators, and we regulate directly the people who build the networks. and make sure that all our energy is connected up, both in terms of gas pipes and in terms of wires.
17:16When you regulate them, there's a question here which gets, I think this is from Liam in Manchester, where he said, what's off, Jim? There's a feeling that you're there to protect the consumer, but in some sense you're there to protect the companies as well. Are you protecting them from the downside? So, OK, we all suffer because of the Russia situation and so on, but are the companies suffering? Are the dividends they're paying coming down? Are their executives getting paid less? Are they sharing the pain? Or do their profits and their pay and their dividends remain where they want? I just want to be clear, because that last answer was quite deliberate by me, because the ones who went bust who were making losses are the ones he regulates.
18:01Right? The ones who are making over, I think it's over 10 trillion or some ridiculous number, I probably got that wrong, worldwide profits, are the ones that we don't regulate. Now, clearly, that sounds a bit crackers. Why aren't we regulating? But to be fair to this man, he only regulates the ones who were making a loss. Now, the problem is quite a lot of those companies have arms that are also making huge profits. That's true. But you can't regulate both sides. If a company like Shell has retail energy, you can't regulate the other side, can you? No, we can't. We focus on the company that buys and sells energy.
18:34And that's the bit that we focus on. And in there, I have to say, we have a balance to strike. And I need to be open. We agonise over some of our price cap decisions. You can imagine as the price cap was drifting up, we'd be looking very hard at what is a fair reflection of cost. That's not a simple question. Because you have a fixed percentage of profit they're allowed to make. So if you double the price of energy, their profits go up. And that is partly because they're buying and selling in a market where their costs are going up and the risk around those costs are going up. But the point is, if you take today's price cap...
19:04But their margins stay the same, though. Well, their percentage margins stay the same. But if you look at today. But if you're charging£2 ,000 and£1 ,000, your percent might be the same, but the amount of profits doubles. It does. But when you look at, you know, and I come back to the point that when we try and make these decisions, we've got two things we're thinking about. First of all, how do you minimise the cost to a customer, both in terms of estimating the costs of energy, but also in terms of the margins that the companies make. But we've got to balance that. How much profit can they make?
19:32So roughly, if you take our price cap in January of£17.38, about£40 to£45 of that, about£3.50 a month is the profit that they're able to make. Now, out of that, and this is the balance. I was actually, my ranker was actually different. You know, I hate the typical use figure. I really wouldn't use it. Nobody pays the typical use. Just to give a proportionate use, there's two and a half percent is another way of putting that. now the reason why the companies need some profit is because as you saw in 2021 martin 30 companies went bust and those costs when companies go bust go back to customers second reason is we have got to continue to improve standards for people today so the mission for 2025 is to build on some of the things we've done this year to make sure companies are treating their customers better and i'll take you back to 2022 when i was faced with one company so eon it's all public who 50 of their customers were jumping off of their calls before they even got answered now imagine out of that 50 of the customers imagine how many of those are vulnerable customers how many of those are prepayment meter customers who are trying to get help that wasn't acceptable we find them and that now is in a very very different position as is the sector but i want to go underlying here yeah because i mean Quite famously, I had a bust up in an internal meeting with you guys and I used inappropriate language to someone and I've apologised for that.
20:52But it was because I was so annoyed. I said something selling consumers down the river was my phrase, but you can work out what the something was for yourself. And that was over something called the market stabilisation charge, which is effectively a charge that says if somebody switches to another company, then the company that's been switched to has had to pay a huge whack of compensation to the one who's lost the business which effectively just killed any form of switching in the marketplace. Now you do do some protection of companies' profits beyond more than just margins because you force them to hedge for energy security.
21:28I'm actually trying not to be relatively neutral on this but I think that's worth explaining. When people look up the wholesale prices and they go, hold on, wholesale prices are so cheap but energy prices are so high. That's partly because you mandate companies to buy ahead rather than to buy more short term, and that puts all our prices up. Why are you doing that? Well, if you look at our job, our job is to make sure that things are best for customers today, but also best for customers tomorrow and in the years to come. Now, the thing we learned from the crisis was those companies who hedged, who bought ahead, were much, much more stable.
22:03The ones that went, 31 of them went, so over 4 million customers got moved in that time. and ended up costing us$2.7 billion in total as a result. Those companies were the ones that bought day to day. So their customers were better off in August 2021, but all of us, including those customers, were worse off when they moved. So the challenge we face is not really between company profits or customers. It's making sure that customers are looked after in the long term as well as the short term. And by the way, that comes back to infrastructure. So we know in the next five or six years, we are going to have to build a lot more networks That's controversial in terms of cost.
22:39That's controversial for communities who are going to have to be engaged to get through that. But if we don't do that, we could end up in a situation that we saw in the last two years, another price spike in the gas market. And that's not something that I think we should stand by and let happen. So we have to make decisions that are about keeping costs down today, but also about looking after customers tomorrow. And that's what we do. This is Scotty. how many backhanders and freebies has Jonathan taken to keep the price cap so high protecting profits who pays your bills who pays off gems bills and do you have links to energy companies so look we um we're funded by a levy which goes to everyone's bill so compulsory which is compulsory energy companies have no control over that they simply have to collect that as part of general collection for the bills as you can imagine as a public servant i get no payments from energy companies.
23:27I get no freebies and I am very, very careful about that because we know our integrity is massively important. Who's your boss? So my boss, well, I report to a board, Gemma, and the chair of Gemma is Mark McAllister. And who oversights and appoints that board? So that board is appointed by the Secretary of State. So it's ultimately appointed by the Secretary of State, but we are independent. So once we're in, our job is to be a bit distant from government because we have to make these decisions independently. Irene says, I mean, takes the point. on the geopolitical issues which caused the rise of gas after the rise of the price of gas rose rapidly when Ukraine was invaded.
24:05But Irene makes a simple point. She gets that. But why are our prices much higher than elsewhere in Europe? Well, the same thing surely applies there. So we look regularly at our prices versus other countries. There are other countries who have higher prices. Germany does, for example. Denmark does, for example. But a lot of it is down to how much you depend on gas. So when we had lower prices than the rest of Europe, is because we had low gas prices. But as gas prices go up, we will find our bills will be higher until we diversify away from that. And that's why we need to build renewables as fast as we can.
24:35Question for Jonathan. Somebody says, could I ask for your view on how resilient the energy supply chain is to cyber attack from nation states and other bad actors and what steps are putting place to improve our energy cyber resilience? Now, is this something you're responsible for or something you're just no more entitled to worry about than the rest of us? No, we are responsible for that. We work with the government on this. I mean, it's worth saying just in terms of security of supply overall, we have one of the most resilient systems in the world, actually. And, you know, compared to many, many countries, we are very comfortable in that sense.
25:12But I think we had the head of the National Cyber Security Centre only say only a couple of weeks ago that this is a risk for the country. Now, we work very closely with the companies to make sure they do everything they practically can to protect against an attack. But I think as a country, we are going to have to be much more vigilant against cyber attacks, almost in the same way I'm saying 10 or 15 years ago, we should have been a bit more careful about who we were buying our gas from. I've got one from Karen, flipping subject here, talking about standing charges. The complete con of the regional disparities.
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25:43Scotland producing all these renewables and yet paying premium standing charges. this needs fixing as well as the general drift to higher standing charges so of course when we talk about the price cap the price cap is regional and it also depends on how you pay so there are different standing charges and unit rates in different regional areas or national areas in the case of scotland scotland of the country why and why do they pay so much more in scotland and the north of england so i'll tell you why they are now and i'll tell you what we want to do about it so they are different between different areas because they reflect the costs of the networks in those different areas.
26:16What does that mean? So what that means, if you can imagine somewhere like Scotland, the number of wires you need per household that are there are higher, for example, than if you live in somewhere like London. So that's what happens today. Now, we're in a process with the government where we're thinking about whether actually we need to unify prices across the country a bit more. That's linked to the question of, well, how do we make sure that we get the best value for places like Scotland that have loads of renewables and, in fact, that can drive the price down? and as part of that we want to look at whether we should unify those costs.
26:45I'm going to do a poll this afternoon on social media whether people think it should be unified. I think that's fascinating. And just to say, we've prioritised first of all the biggest question which is whether to have a zero standing charge or not. But that is part of it. Yeah. Regarding the electricity priority register, Jill says she's on the register but during the two long power cuts in the recent storms I had no contact, also could not contact anyone from the numbers I was given to phone. Every time I ended up on a long waiting list, when I went on the register, I was told I'd be contacted to ensure I was okay, but that didn't happen.
27:19That would drive me mad if I was Jill, and then the regulators there are supposed to regulate. How are those firms brought to account that didn't respect the fact that she was on the priority register? Well, look, we have engineers who've been regularly visiting the sites where those power cuts are happening right now, so we are working very closely with the companies and we put a huge amount of pressure for them to do three things. First of all, they should have contacted Jill. So I think she should go back to the company that she's been trying to contact and we should be having a conversation about that.
27:50Secondly, they need... Shall we get Jill to get a note and we'll get that sent to your office? That would be pretty helpful. So we'll ask Simon, producer Simon, can you get that to me and we'll get that to Jonathan. The second thing is, you know, all engineers available need to fix the problem. And the third thing is, if you've been off power for a certain amount of time, you should get compensation. We raised the maximum of that compensation from£700 to£2 ,000 after the last set of Storm, we might remember, Storm Arwen. Now, what we will do, and we do this with every big Storm, is we will examine really closely the behaviour of the companies.
28:18And if that is common practice, we'll do what we did last time, we'll find them and we'll work with them to try and improve it. But why has she got to go to the company to complain, where by definition she can't pick, as you've already said, she can't get anyone to pick up the phone or answer an email? Surely there should be an off-gem, tell-tale, complaints line, whatever, to say, look, I want to report this company for not getting in touch with me. Well, three things you can do. So go to the company. You can go to the ombudsman if your complaint isn't resolved. You have to go to the company first to do that.
28:45That's the problem. She can't do this because the company won't respond to her. And then do come to us. Where does the ombudsman fit in? So if a company's not resolving your complaint, so they're ignoring you, then you can go to the ombudsman. Are you asking a bigger question? What's the difference between the ombudsman and the regulator? Is that sort of a point? Yes. I mean, let me just do that structure because people get this in the financial as well. The regulator is looking over companies in the markets to see how they work, what the rules should be, and are they big picture systemically operating them.
29:14The ombudsman is a bit like, it's bad phrasing, it's a dispute resolution process between the individual and the customer on the back of the rules set up by the regulator. So he, Jonathan, doesn't deal with individuals' complaints. right he might see a whole there's 500 people complaining about this oh that looks like a systemic problem we should investigate but he's not going to look after the 500 people they need to complain to the firm this is where it's set up and then the ombudsman can make an adjudication so it's a bit like a mini court within a sector if you like that's the difference between the two yeah brilliant and look on on jill please do get in touch with us though it is frustrating to hear those companies haven't reached out what with you or the ombudsman in this case yeah yeah but that's the head of the regulator sitting here.
29:57We're going to pervert the process because he can go in touch with the firm to do it. And also, hopefully, when that call goes in, they might say, I hope you're not doing this with other people, rather than you can't just go to Jonathan. He can't sort out individual problems. He'd have nothing else to do. That's exactly right. I understand that because I get to say, I have a couple of things I want to do, Adrian, before we go into smart meters, which you want to do. So, quick one. Do you, Paul, do you anticipate that renewable energy and grid storage prices will continue to drop significantly over the coming decades.
30:27If so, do you see a combination of energy independence and cheaper bills for the UK in the long term? So I think the short answer is yes, I think we will see that. Now, you know, this is going to take a long time. So we've looked at how you get to 2030. We think the costs of the system are roughly the same as the cost today. But I mean, we have always been genuinely surprised by how quickly costs have come down in renewables. And when I look at batteries, there are new technologies now, which means batteries are becoming much more cheap to produce. And if you look at electric vehicles, the range of an electric vehicle is getting higher and higher.
30:59So over time, I think without a doubt, we're going to see an electric vehicle market take over the petrol market, not because government wants it, but because people are going to move to a cheaper way to move around the country. And I expect that over a lot of renewables. It'll take time though. So this is something I'm starting to lobby on. And it's good for me to say that publicly. I have a concern about time of use tariffs. I've spoken to the Secretary of State about this. So time of use tariffs, which I think we're going to see more and more of, that's where the amount that you pay changes every 30 minutes.
31:28They are potentially a very good thing because if you make it very cheap at night, people will shift their energy use to night. And the nirvana is your smart meter will do it automatically. You'll tell it when it's below this price, turn me washing machine on. You know, that's how it will work. And when we do that, because we won't need such high levels to cope with peak demand, everybody's prices should drop. So that's the sort of the nirvana in a decade's time type thing. This is my problem with it that I don't think is being considered enough. And it's almost a problem for me. People are going to ask me in the future, what's the best time of use tariff?
32:03The prices are changing every 30 minutes. You cannot rely on the past price to be an indicator of the future price. So while we will gain from it societal wise, in terms of consumer transparency, it is very dangerous. I have ideas on what we need to do. But what are your thoughts? How in the future, when we have 30 minute rapidly changing time of youth tariffs, is a consumer meant to know which the best one for them is? So I think this is an area we're going to need to work on together, actually, because it is complex and you can't perfectly predict the future. A bit like you can't perfectly predict what's going to happen to the price cap in a year's time.
32:36I think what we've got, though, is the opportunity of now more than ever rich data and algorithms that will allow us to be able to make calculations, to be able to compare those two things. But I think it's a new area. We're going to have to find a way to see how customers are going to evolve. And we'll have to do that with you on our own. I just deliberately threw the ball in the air, hoping you would hit it that way so I could catch it and reply with this. My view is you will need to mandate companies to publish their pricing algorithms. if the pricing algorithm was published even if it's one that consumers can't understand but it's one that someone like me with a team of data analysts that we can therefore plug them all into machine and plug everyone's algorithm into machine and then say what's your usage okay if looking at your usage this one would be cheapest for you but it's that transparency that i'm concerned about there has to be they obviously have a pricing algorithm and they're going to need to open that up otherwise we're just going to be you're just going to be plucking you know a nose hair out of the nose to find out which is cheapest.
33:35And on that, however we do it, that transparency is going to be vital. OK, let's move on to the subject of smart meters now. On smart meters, Alex asked something, which I would also ask, is why on earth were the supplier banging our doors down, giving us no peace to put a smart meter in, when even the fellow that fitted it saying, oh, he won't work here, because you haven't got the right phone signal? So actually, through Martin, I know why. Because the firms were incentivised to say, you've got to fit a certain number of smart meters. And I think, did that come from you? Did that come from Ofchip?
34:12It comes from the government. But no one said they had to be working. It's mad. So look, first of all, just stepping back from this, we think smart meters are a really good thing for customers. There's two reasons for that. One is that they automatically send your usage, so you're not having to report your own usage, or someone's not having to come around your house to check what you're using. Secondly, it does help people understand how their energy patterns are across the house and it should help you try and make savings and we've seen that. But there are problems with the network, etc. And more importantly, there are smart meters that are going back into the old mode and we don't think the numbers that we're seeing in the market...
34:48The radio transmitters are being switched off, aren't they? Next June, I think it is. There is. And there's a particular issue of the radio transmitter. 450 ,000 people are going to base their smart meters will go dumb. but so we go back to Adrian's point you're right people are forced to have you know companies are fitting meters that they know won't work I have written to the Secretary of State for Energy saying you need to change the targets to working meters rather than install meters I would say I'm I'm warm to hopeful on that one over the next year Jonathan probably doesn't know but I'm warm to hopeful that's all I can say I don't know it will happen you would you think that's likely to change well I I think we've I think we've got to continue to to put smart meters into people's homes and i think they need to work yeah they need i mean of course of course not just put them in put working ones in but let me say this i i agree with you and also there's a job for the industry to do it to make sure that where they can they're fixing them so all of that needs to happen so people often ask me this question i know the answer but i'm going to ask you because i think it's important can you be forced to have a smart meter can they force you to have a smart meter for a specific tariff can they force you to have a smart meter overall so So companies can say if you have a tariff, then that needs to be on a smart meter.
35:54And some companies do, but no one can force you to put one on your home if you don't want to. Unless your old meter comes out of date, can they then do it if you have a past use by date on your old smart meter? So I think you're still mandated. So you can still make the choice, but I think you're encouraged at that point to get a smart meter. My point on those people who don't want a smart meter. And again, I think this is a vicious circle here until we get the smart meter rules right. And Tina is saying, why do we get charged a higher rate if we don't have a smart meter? OK, I don't think that's as true as people think it is.
36:21So many of the competitive fixed tariffs, and this is what I study, that we've had over the last six months, normally about 80 % of them don't require you to have a smart meter. So actually do a comparison and go for the best deal that doesn't require you to have a smart meter if you don't want one. As an aside, because someone, I saw this question, I haven't got it in my list in front of me. Someone said to me, we can't have a smart meter fitted. This is unfair because I can't get the tariffs. If you have been told it is not practicable, let's say practical, it's a simpler word, but practicable is the right word.
36:53It's not practicable to have a smart meter. Then you should be able to access a smart meter tariff without a smart meter. Because if you can't have one fitted, you shouldn't be disenfranchised for that reason. That's correct, yeah. Why don't you tell us what the price cap's going to be when all these other energy firms are predicting it, why don't you come out and say, you've got the algorithm, you know where it is, this is what we predict for the price cap every six weeks. And we've talked about this, and we are definitely open to being transparent about it. I mean, to be blunt, though, those companies use the same model we use, and so they're not far wrong.
37:26The reason why we're a bit hesitant... You've heard that here. When I do those predictions, those predictions are pretty on the ball. Yeah, yes, and there's plenty of firms out there... Because they're coming from those firms. ...who supply those. Now, the problem with them is, though, If you look at the price cap example for April, you mentioned that in your opening. That number, by the time we get there, could be very, very different from the number that we gave out today. Because we're two weeks of 12 weeks through that process, or maybe three weeks of 12. But the further along we go, the more right it gets.
37:52Once you get to halfway through, for it to be very wrong, prices would have to shift. You'd need a new war somewhere or something. You would, and I think we're open to doing that ourselves. All we don't want to do is mislead people. We don't want the regulators saying, it's going to be this price and then people find it. But the problem with you not doing it and the reason is energy firms, we've had this before, we know the price cap. People like me know the price cap is going to drop 10%. So an energy firm offers a fix that's 2 % cheaper than the current price saying you're going to save money by switching to this.
38:19But we know the price is going to drop in three weeks time and their savings figures are based on the wrong information. And that is a problem. Yeah. And we're very open to think about how we might help with that, because I think that would help people calibrate what they're doing. We also just want to think in the future about what's the right structure for the price cap. So are there ways in which we can change it to make it more consumer friendly? So that was my interview with Jonathan Brearley, the chief exec of Ofgem. Now I move on to a conversation with Greg Jackson, the boss of Britain's biggest energy retailer, Octopus.
38:52Tony's got a question. Tony, why are we constantly being charged more now and being given the excuse of war in the Ukraine and everything else when bonuses and profits for every firm have gone up to the highest they've ever been, Greg? Yeah, I can't speak for the firms. I think we barely made a profit this year. About£8 million, wasn't it? Yeah, it was about£11 per customer across the year on a bill of£1 ,700. The price cap caps energy company margins at about 1.82%. Supermarkets are on thin margins there at three. But there are huge profits further down the supply chain. So particularly those global oil and gas giants, you know, we've seen record profits from them over some of the recent years.
39:39And of course, a lot of them are non-British companies. That's from around the world because that's where we're buying a lot, for example, our gas from. But there are other major issues like, you know, the energy electricity generators. You know, some of them are, you know, generating electricity, sorry, turning off their wind farms when they could be generating electricity and getting paid to do that because we've got a broken market. And then we've seen companies exploit the way the back end works. There are a bunch of, I think, two or three gas generators that got paid 17 million pounds for two or three hours generation.
40:11So the reality these days is the energy suppliers, partly thanks to the price cap, have genuinely very low profits. But throughout the supply chain, the source of the energy, there are still many places people make a lot of money. So you as an energy retailer, let's just break this down a bit. You're an energy retailer. You buy in gas and electricity and you distribute it and provide the customer service functionality for people who sign up to Octopus's Energy. Yeah, we also, by the way, handle all the difficulties people have not being able to pay their bills. Essentially, collecting money but looking after customers, which all those back-end companies don't do.
40:49You're a retailer. Like a supermarket, it's a retailer. It doesn't make the food. It sells the food and it deals with the customers and it does the interfacing between the two. Now, the problem is when people look at energy firms' profits, and we've had this when we had Offgem on the show, a lot of people go, why are you allowing such big profits? Some firms are integrated across the board. So some of the firms that we deal with, I mean, British Gas is part of Centrica, they go further down the supply chain. The profits are regulated at the retail end, but Ofgem doesn't regulate beyond that. It doesn't regulate producers or generators or distributors.
41:24So therefore, it doesn't regulate those profits. And therefore, it's a confusion between who's making what. You're a retailer only primarily. That's right. I was going to say, a bit like supermarket. A lot of supermarkets, most of the stuff they sell, they don't make themselves. But some of them own a few farms or have got their own arrangements. And I think it's very much like that. But our job is to be at the front end, essentially providing the customer with the service. That's the actual product of energy and the service around it. And then do what we can to squeeze cost down the rest of the chain.
41:53And so some of those integrated firms who are making the really large amounts of profits, which tends to be because of further down the supply chain than the regulated bit at the end, they're not allowed to cross-subsidise and make it cheaper at the retail end, though, are they? because that would give them an unfair advantage. So actually almost competition law prevents us as consumers benefiting from the fact they're integrated. Is that correct? I mean, I think that's a reason that some of them will give. I mean, the reality is if they were allowed to do that, they'd probably just break the companies up and have a very profitable company doing the generating.
42:25In fact, two companies left the retail market to focus on generation because I think one of them said, you know, retail was 20 % of their profit, but 80 % of their headaches. And, you know, part of our job now as retailers, and obviously you do this brilliantly in your job, is to start putting pressure on the rest of that chain to say, how do we squeeze cost out of it? Because we've got to do something, bills are too high, and we've got to fix that chain to bring bills down.
42:56Stephen says, ask him, ask Greg, is it genuinely possible we will see prices go back to the pre-COVID Ukraine war levels, given the renewable plan? Or is the government industry plan wrong? So just to put this in perspective, the cheapest fixes before the energy crisis, for someone on typical use, hate that number, but it just helps explain it, about 800 quid. Now most people paying 1 ,600 quid, roughly. So it's roughly double what the very cheapest fixes were. The price cap was a little high, but what the cheapest fixes. Are we ever going to go back to that£1 ,000-ish a year type level, do you think?
43:27Yeah, I was going to say, for me, I would say it was pre-crisis, really about£1 ,000. There was that dip when there were some companies making astonishing losses that ended up going bust, and they were the ones typically leading the charge on the angel quit. But around about£1 ,000 was kind of the natural level. The modelling says that in 10 or 15 years, as you kind of start squeezing gas completely out of the system, move to a fully electrified system where the vast majority is coming from renewables, you start getting down to those levels. I don't think we can wait that long. And that's why we need things like, you know, to start reforming our markets.
44:02You know, the biggest wind farms, some of the biggest wind farms get paid more to not generate than to generate. And that all goes on our bill. These can be fixed. You know, on the windy days in Scotland, we're turning off wind farms instead of giving the electricity away cheap or even free to at least do something with it. Because currently the market pays those companies to not generate. That's why you'll see me so frequently advocating for this reform. So far this year, turning off wind farms and then paying gas plants to generate expensive replacement electricity has cost UK build payers something like£350 million.
44:41And it's only in the middle of March. Our Lachlan says wholesale prices for energy are cheaper now than before the Russian-Ukraine war. I'm not sure that's strictly true, but that's certainly lower than they were at the peak of the Russian-Ukraine war. Yet prices are over three times more. And I'm just going to move it on to another question that this one's from Dan, I think interlinks with that. Is it time to break the linking of electricity prices to the price of gas? And if not, why not? Yeah. So two quick things. I think, first of all, you know, that first question, to a degree, was right.
45:13I mean, depending on the date you look at, wholesale prices have come down a lot. That's why you were so right earlier to be highlighting that right now, a fixed tariff will be cheaper than the price cap, because the price cap was backward looking. We've had this very rapid drop in wholesale. But that market is so volatile. It's perfectly possible there's some more tensions. You know, the peace process doesn't go well. There's so many variables in this. Which is why, if it's cheaper on the day, you bag it on the day and cross your fingers it was the cheapest day. And if it wasn't, if it's still cheaper, it's still cheaper.
45:45You don't know, you've locked it in. I would say, though, I mean, you know, I would say thanks to the price cap, at least when prices do come down, people get the benefit sooner or later, which didn't used to happen, as we know. But I think the so at the moment, you might say we're paying about 60 percent more our retail price than we were before the crisis. If you're looking at the cheapest fixes now. And so there's a whole bunch of new costs coming to the system, like that massively increasing cost for turning off wind farms, which is why it's good. We've built renewables. It gives us energy independence.
46:17We're not so dependent on the global gas market. But we need to reform the market so that some of the benefits of that flow through to people. There's a particular thing we advocate called zonal pricing that would reduce energy costs by£3.7 billion a year just through operational savings. Probably another£2 or£3 billion through infrastructure savings at least. Now, that's how we get back to the kind of prices we experienced before the crisis. Now, that's off my area, but it is important to say that there are other energy firms who dispute the savings that you're suggesting in that method. It is a relatively divisive issue.
46:50It doesn't mean either one's right or wrong, and I'm not qualified to judge because I don't cover those wholesale markets. I just want to raise one more point. We had a professor on the show who was quite senior, who used to work in Shell and was buying, saying he says that the price cap of Gem is making a mistake by linking to the price cap to the price of European gas. and that isn't really the way that you could be buying it. And it could be a lot cheaper if we decoupled the Ofgem setting the price gap on European gas. What do you think about that? Actually, UK gas prices for consumers are lower than most European countries at the moment at retail level.
47:24It's electricity that's our real problem. So I think, look, I'm focusing entirely on what we do to fix that very broken market. There may be some details in gas, but honestly, that's a side issue. You don't think it'd make much of a difference? It's a side issue. The big issue is the inefficiencies in our electricity market. And I think you asked about that decoupling gas from electricity. The thing I was advocating, which some incumbents don't agree with, but that would break the link to a large degree. At the moment, the way our electricity market works is the price is set every half hour by the most expensive unit of electricity generated anywhere in the country during that period of time.
48:04That 80-odd percent of the time is expensive gas. If we move to more locational pricing... Sorry, is that the price you pay? Yeah. That's the price that you pay? That's right. At any moment? Yeah, the wholesale price. And so that's not for people on fixes because you would have bought a head? That's for people... No, so even when we're buying a head, essentially the energy traders that lock the price in for us buying a head and making their assumption of what the wholesale price is going to be. and they know that 80 odd percent of the time it is set according to the price of gas. Now, if we move to a more locational model with local supply and demand setting it, many areas wouldn't have the price of gas setting it within a given half hour.
48:45So you break the linkage to a large degree. We've got Leslie Button asking on Facebook, why do I have to pay a standing charge to be a customer? The argument that is to cover things like meters, fixed costs, etc. doesn't hold water. I don't have to pay Tesco a standing charge to cover their rates, building insurance, etc. So why do you have to do it with energy companies? Yeah, well, so first of all, we've been very clear that standing charges have got out of all control. Most countries have some form of standing charge. And, you know, that, for example, we have to pay a daily rental for the metres.
49:24And there's a bunch of other costs we get charged by the regulated system. for every day a customer is with us. Now, you know, I think hard about how we bring down standing charges, but I think one thing is it's like with a coffee shop, you don't have to pay a standing charge to use it, but they have enough customers using their overheads, like their rented space every day to spread the cost out. When you've got a meter, you're the only person using it, and so you can't spread that cost over a lot. So that's why most countries have some form of standing charge. But what's happened over the years is there's a whole load of regulated costs that used to be spread out over everybody.
50:02For example, a lot of the payments to the people that own the networks, the wires in your local region, used to be paid by a little bit extra you added to the unit rate. And the regulator moved that onto the standing charge and made that a fixed cost per customer per year. So the only way you could recover that cost was through the standing charge. Now, I think that's crazy. And I think it's completely perverse that because you've got these really high standing charges, people who can try and save a little bit of energy don't save as much money as they should. So we've been pushing the regulator a lot to try and take some of these charges.
50:43In fact, when they did that move, for example, it was something called targeted charging review. I think we were maybe the only or one of the few companies that really pushed hard against it, because we don't think people should have to pay all these very high charges just to have access to energy. So, you know, look, I've campaigned against the standing charge for a very long time. You've got the potential of this new dual price cap coming in, one with low standing charges, one with higher standing charges. I mean, it has to be said that on the price cap, the regulator sets the maximum standing charge and the maximum unit rates.
51:14You could go lower. You could choose to do it lower and choose to put the cost on the unit rate. You could do it either on your price cap or you could choose to offer a no standing charge tariff. There are a couple of firms who do it and they recoup it through higher unit rates. You haven't decided to do that, haven't decided to offer that in the competitive market. No, and I think there's a couple of reasons. I mean, first of all, we've always charged below the price cap on the standing charge. Currently, it's between£10 and£50 a year below, depending on what tariffs you're on. But the problem with those ones that try and recruit on the unit rate is unless you use almost zero, you pay more, right?
51:49Because those unit rates are so much higher that very quickly they cover the standing charge. And then any usage above that is costing customers a lot more. It's very difficult. The most important thing we can do isn't this mucking around at the edges. it's to reduce those fixed costs that the regulated system put on each household. And that's why we campaign against TCR and we campaign against standing charges.
52:17Let's just do a couple of questions about Octopus specifically. We've got Dave who is asking, why can I not get the cheaper rate for charging my car just because Octopus don't list my charger or my vehicle? Yeah, so I think Dave's probably referring to something called an intelligent octopus tariff. That's where you can pair your car or your charger with us. And what that does is it means that we control the exact time your car charges, what time is grabbing electricity from the grid. Now, electric cars pull enormous amounts of electricity. So if you can pull it out at the cheapest times, you can save an awful lot of money.
52:56now those cheapest times vary every day depending on the wind the sun how congested your local network is i think there are 28 different variables um if we can control it we can grab the uh electricity the cheapest times if we can't control it there's still some very cheap tariffs they're just not the cheapest so if you've got a car that we cannot pair with we can't do that i think we should look at this the other way around so you have one do you have a tariff for the people you can't power it with that's an EV tariff? Yeah, so there's the standard one, which is cheap between 11pm and 5am, or varies a bit.
53:30But that is super cheap during those times. But the very cheapest one, we can control the device. By the way, we also do the same with people who've got home batteries, for example. We can try and integrate with those. But essentially, all this is about understanding in the new electricity system, if someone can shift their consumption, they can get cheaper power. But if we do that, it makes it cheaper of everyone else too as well because it takes demand away from peak times. So it reduces the competition for electricity at times with less of it around. So everybody benefits. That's it for this week's Energy Interviews Best Bits special.
54:05That's not that easy to say. If you've enjoyed it, please do tell your friends you've been listening to the Martin Lewis podcast. We tend to put out new episodes every Thursday, so you could always suggest they subscribe. Why not? Hey, go on. I gotta pay So I'm gonna work I gotta pay I gotta pay I gotta pay So I'm gonna make sure everybody eats Martin Lewis is the founder of moneysavingexpert.com But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing martinlewispodcast at bbc.co.uk The offers and rates mentioned in the podcast are correct at the time of recording.
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From the publisher
In this Energy Special, Martin asks the boss of Ofgem why we pay more in the UK. Plus, he questions the boss of Octopus Energy about prices, smart meters and more.