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Fines on energy giants only part of the solution

Here we go again.

Another of the big six energy companies has been found guilty of mis-selling, the chief executive has said sorry and Ofgem has handed down a financial penalty; in E.On's case, the largest to date for a UK energy supplier. The company, which was found guilty of poor sales practices among staff selling by phone and on the doorstep, will have to pay out at least £12million to customers, with much of the compensation going to the poorest.

For regular customers of the Big Six, and that will mean most of us as they account for about 95 per cent of the market, the fine for E.On will seem wearily familiar. In recent years, ScottishPower has been fined £8.5m for misleading people on the doorstep and on the phone; npower was fined £3.5m in December, five years after a £1.8m fine for mis-selling; last April, SSE was fined £10.5m for mis-selling gas and electricity; and in 2011, British Gas and npower were fined millions over their handling of customer complaints. All together, it is evidence of a profound and persistent malfunctioning at the heart of the energy market.

The good news is that, in recent years, Ofgem has to some extent been more effective in holding the companies to account, although the fines still represent relatively small proportions of profits. What is most welcome is that Ofgem has required E.On to pay compensation to anyone who was mis-sold an energy package, but also make payments to those who receive the Warm Home Discount, a group that includes low-income families. This will mean that some of the poorest and most vulnerable customers (those most likely to be the victims of mis-selling in the first place) will be compensated.

E.On's position on bonuses is less satisfactory. Ofgem said E.On had failed in its management and found evidence senior managers did not do enough to identify problems or act on them when found. In the light of this, it is disappointing that, in apologising, E.On's chief executive Tony Cocker did not also agree to decline his bonus. He said his bonus for 2013 (E.On was mis-selling up until December 2013) would be reduced by 25 per cent. He also said other directors had had their bonuses cut by 50 per cent. But it is still not good enough. The bosses of a firm that misleads its customers should receive no bonus at all.

To its credit, E.On does appear to have acted to prevent any repeat of the crisis by ending doorstep selling and cold-calling and that may help to make the market fairer. However, there remains a persistent impression that the market works for companies rather than customers, an impression that must now be thoroughly investigated by the Competition and Markets Authority, the body responsible for reducing anti-competitive activities.

The fines imposed on E.On will help and mean those on the lowest incomes will receive some compensation. But it is those customers who have suffered most from the way the market has developed in the past 20 years. Companies should be fined when they misbehave, but decisive action is also required to re-introduce genuine competition into the market.

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