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Should the suppliers of energy to care homes be investigated?

Updated: May 10, 2023

As we all struggle with the crippling cost of energy this winter it came as no surprise to learn that energy suppliers to care homes have been accused of profiteering.


The chief executive of Care England, the largest body representing independent providers of adult care, has accused gas suppliers of being “unduly onerous” in their practices. He accused energy suppliers of profiteering by charging “horrendous and financially crippling rates” to care homes facing huge bills this winter.


In a letter to Ofgem, and the Department for Business, Energy and Industrial Strategy (BEIS), Martin Green called on the energy regulator to launch an investigation into suppliers’ practices.


A review by the not-for-profit energy consultancy Box Power Cic found that gas suppliers were not passing on recent falls in wholesale prices to businesses in the care sector.


Green wrote: “We believe there can be no justification for charging such horrendous and financially crippling rates that gas suppliers are explicitly prohibited from doing so.”

Ofgem’s supply licence stipulates that companies must take all reasonable steps to ensure that the terms of each deal for customers not locked into long-term contracts are “not unduly onerous”.


Green said: “Undoubtedly one of the most pressing issues facing the country at present is the ongoing energy crisis. The rises in wholesale electricity and gas prices are having a profound effect on businesses and individuals across the country.


“However, there are few environments where the impact has been as severe and devastating as in the adult social care sector, which is required to heat facilities this winter and increase ventilation by letting in fresh air into indoor spaces.”


Green said there was an “underlying financial fragility” in the sector and its need to use large amounts of energy “has meant providers are pushed further into what was already an incredibly precarious situation”.


Energy companies are failing to pass on drop in the cost of energy


The price of natural gas has fallen sharply in recent weeks as a mild start to winter and good progress in filling up European storage facilities have eased concerns over shortages of Russian gas this winter.


The government introduced a six-month scheme to discount businesses’ energy costs last month. The Box Power study found that many tariffs were being increased by more than the government’s discount and “bear no relation” to current prices. It said companies were being charged 25p to 40p per kilowatt hour, far higher than spot prices of about 3p.


The trade body UK Hospitality said companies had been quoted deals “substantially” above the wholesale cost. Its chief executive, Kate Nicholls, said there was “no reasonable explanation for this colossal increase in margins” and wrote to the business secretary, Grant Shapps, requesting an investigation by the Competition and Markets Authority.


The business department said it was “aware of a small minority of businesses” reporting energy suppliers were undermining the energy bill relief scheme in response to Nicholls’ claims. It said it was working with Ofgem to ensure licences had not been breached.

Suppliers have argued that uncertainty over the future price of gas and electricity has made determining the price of contracts difficult.


A spokesperson for the energy regulator said it intended to respond to the Care England letter, adding: “Ofgem’s priority is to protect consumers and businesses and ensure they pay a fair price for their energy.


“That’s why we are working with government and stakeholders to determine if further action or assistance is needed to help protect businesses including care homes and their residents, including whether a review on compliance of existing obligations is needed.”


Are the energy companies following the same pricing model as the petrol suppliers?


Anyone who fills their car at a garage knows that following an increase in the price of petrol, supplies are not in a rush to drop the price, which is never consistent with the price that it can be purchased on the open market.


Energy suppliers seem to be following the same pricing model, by delaying a drop in price. Even though the storage of energy and the thus far, a warm winter, has led to a fall in the price of gas.


Summary


Martin Green is right to question why care homes are being charged horrendous and financially crippling rates for the supply of gas. The Box Power study found that many tariffs for care homes where much larger than they should be, and care homes are being quoted deals “substantially” above the wholesale cost.


Energy companies in their defence are claiming the uncertainty over the future price of gas and electricity has made determining the price of contracts difficult. The business department are suggesting it was “aware of a small minority of businesses being affected, but this cuts little ice in the context of concern in Martin Greens letter. He is right to call for an investigation by Ofgem to protect the social care sector from profiteering by energy suppliers. Otherwise the benefits of the Governments six-month scheme to discount businesses’ energy costs will be wiped out.


Albert Cook BA, MA & Fellow Charted Quality Institute Managing Director Bettal Quality Consultancy

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