Energy firms under pressure to cut bills after sharp drop in wholesale costs
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Version 0 of 1. Britain's big six energy companies have come under pressure from the regulator and consumer groups to cut household gas and electricity bills following a sharp drop in wholesale costs. The regulator Ofgem said that at the start of this month gas prices for next day delivery reached their lowest level since September 2010 and were 38% below this time last year. Prices for electricity reached their lowest level since April 2010, and are currently 23% lower than June 2013. Despite that, the regulator said that the suppliers – SSE, EDF Energy, Scottish Power, E.ON, npower and British Gas – were showing no signs of reducing prices, or even of explaining to customers why they were not doing so. In a letter to the industry, Ofgem said a failure to engage with consumers on this issue "further risks undermining public confidence in the energy market". The regulator said that while there were upward pressures on energy costs from government schemes to support environmental objectives and network renewal, the costs of wholesale power and gas, which account for half the prices paid by consumers, "dwarfed" these. The letter is expected to add credence to the view that Britain's energy firms are quick to put prices up when wholesale bills rise, but slow to cut them when the reverse happens. Ofgem said forward prices for gas and electricity were around 16% and 9% lower for the coming winter, due to healthy gas imports and unseasonably warm weather over the past six months. The regulator's chief executive, Dermot Nolan, said: "The big six suppliers tell us that they think the market is competitive, but our research shows that consumer trust is low. "Therefore if suppliers are going to start rebuilding that relationship they need to take the initiative and explain clearly what impact falling wholesale energy costs will have on their pricing policies." Ofgem proposed referring the retail market to the Competition and Markets Authority after a joint report with the Office of Fair Trading and the CMA confirmed that competition was not working as well as it could be. Data published by Ofgem last week showed dual-fuel suppliers were poised to make an average profit of £96 per home over the next year, compared with an estimated £44 over the past 12 months. Gillian Guy, head of Citizens Advice, said: "Energy prices and profits do not add up for consumers. Companies hike prices when costs rise, so consumers expect them to come down when wholesale costs fall sufficiently." "If wholesale prices go down by 10% then our bills should go down by 5%," said Ann Robinson, director of consumer policy at price comparison website uSwitch. It's time for the energy companies to seriously start thinking about reducing our bills." Caroline Flint, the shadow energy minister, said that if elected her party would give powers to the regulator to force suppliers to cut prices when wholesale costs fell substantially. Labour leader Ed Miliband has already pledged to put a 20-month freeze on household energy bills if he is elected. A spokeswoman for Energy UK, which represents the big suppliers, said: "Wholesale energy is just one of a number of costs outside of an energy company's control, which make up a household bill. All energy suppliers aim to hold costs as low as possible for as long as possible. There are now 24 domestic energy retailers in the UK. They buy gas and electricity months and even years in advance to smooth out the swings in the market. "When wholesale prices fall it can take time for bills to catch up as the gas and power may have been bought at a higher price some time ago. The suppliers also have to take all manner of risks and wider costs into account, including political and regulatory issues." British Gas managing director of residential energy, Ian Peters, said: "We buy our gas well in advance, so movements in wholesale prices, up or down, do not feed through immediately to retail prices. We have other costs that are rising – regulated transport and distribution costs, environmental costs, metering costs. We are certainly not increasing profits on the back of lower wholesale gas prices. Our trading statement last month downgraded profit expectations." |