Delays in cutting fuel bills by Britain’s Big Six energy suppliers cost UK consumers £2.9 billion

electricity billsBritain’s Big Six major energy suppliers – and others – could have cut fuel costs further and sooner than the recent round of cuts, a delay which has cost consumers £2.9 billion over the last year, according to a consumer charity.

Which? analysed the costs to suppliers of buying wholesale energy since 2013 and compared this against what consumers have paid for wholesale costs through energy bills in the same period.

It found that the failure of retail prices to align with wholesale costs has cost consumers £2.9bn over the last year, an equivalent of £145 per household on standard energy tariffs.

The Which? report suggests standard variable energy tariffs have not kept in line with wholesale prices over the past two years.  A spokesman for the London-based consumer association said: “We can see no justification for the increases to gas and electricity prices in late 2013, based on wholesale costs, which for gas prices alone is estimated to have cost consumers £421million per year. 

“The recent cuts in Big Six standard gas tariffs of up to 5.1% should have been greater, in the region of 8.8% to 10.3%, if they were to align with wholesale energy costs -equivalent to a decrease of between £777 million and £907 million per annum to households on standard gas tariffs. 

“And our figures show suppliers could reduce electricity prices by up to 10% – a saving of at least £1.6 billion a year to consumers on electricity standard tariffs.

Our analysis places a massive question mark over how suppliers have been setting prices over the last two years. They now need to explain to their customers why bills don’t fall further in response to dropping wholesale prices. Energy bills are consistently the top consumer concern so it’s about time people got a fair deal.

“While the competition inquiry should establish beyond doubt whether the price people are paying today is right, consumers will now look to politicians of every party to set out how they’ll deliver fair and affordable energy prices in the future.”  

Which? has submitted its analysis as fresh evidence to the ongoing Competition and Markets Authority’s investigation into the energy market, and to HM Treasury for its more recently announced inquiry.

Last night, Scottish Energy Minister Fergus Ewing commented: “The Which? report has confirmed that customers are not getting a fair deal from their energy suppliers.

“I have written to the big six energy companies calling on them to pass on the savings from falling wholesale costs, for both gas and electricity, to consumers with immediate effect and to the fullest extent possible.

“Last week Ofgem announced that data showing an increase in estimated supplier margins is further evidence that the energy market is not working well for consumers.

“While we welcome the Competition and Markets Authority investigation, we must not delay action and I call on the UK Government to take immediate action to ensure our shared energy market delivers affordable energy supplies to all.

All energy providers must implement price cuts now – not wait until the Spring.

“Energy companies must do all they can to assist vulnerable customers and ensure that they are on the best possible deal. Last month, I wrote to the chief executives of the major energy suppliers seeking assurance that consumers will feel the benefit of lower oil prices at the earliest opportunity. Whilst all of the ‘big six’ have committed to reducing gas prices only EON has applied the cut with immediate effect.

“Whilst I have welcomed these cuts they are nowhere near enough. The reductions are between 1 and 5 per cent per year on the average bill compared to a 25 per cent reduction in wholesale gas prices over the past year. I also urge the companies to look at reducing standard electricity prices in line with the 15 per cent fall in wholesale electricity costs

“It is a scandal that there should be any fuel poverty in a country as energy-rich as Scotland, with over 39 per cent of households affected – driven largely by the rise in energy prices. We are doing all that we can with the powers we currently have to address this issue, providing £79 million funding this year for our home energy efficiency programme that will help people manage their fuel bills better and give them warmer homes.”

Commenting on the report, the Scottish National Party said that energy companies ‘must answer’ for their prices in the UK, which has seen the highest increase in domestic electricity and gas prices in the EU both excluding and including taxes, between 2011 and 2014.**  

Mike Weir, MP, the party’s energy spokesman, said: “This analysis shows that the failure of energy prices to align with wholesale prices has cost consumers a whopping £2.9 billion over the last year. That is shocking and simply unacceptable.  

“Even now when the companies are making great play of reducing gas prices many of them are not coming into effect immediately.  

“Following the recent report from Ofgem showing that energy company profits per customer had risen this is yet another blow for hard pressed consumers. The companies have serious questions to answer about their pricing policies and attitude to hard pressed consumers.”  

** http://www.europarl.europa.eu/RegData/etudes/IDAN/2014/536290/IPOL_IDA(2014)536290_EN.pdf

Meanwhile, Lawrence Slade, chief executive of Energy UK – which represents Britain’s Big Six, and other energy suppliers – said: “The Which? calculations are based on very many assumptions and do not reflect the cheaper deals we are seeing.

“Which? points out that each company allocates their costs differently and this makes it difficult to estimate wholesale costs and hedging strategies. Indeed its hedging assumptions for 2013 are different from Ofgem’s report based on the companies’ actual accounts.

Costs are coming down but, because energy companies buy ahead to fix prices and to plan with certainty, the gas and electricity we are using today has already been paid for.

“Indeed, customer deals are falling in price – over £100 cheaper than this time last year. “

 

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UK energy companies to be accountable to Holyrood MSPs in Scottish Parliament

Holyrood MSPs will have more say – and more chance to hold to account – major energy suppliers operating across UK markets – including Scotland – even though they may not be domiciled or registered in Scotland under the new Smith Commission and UK Government’s Draft Scotland Bill. The UK regulator, OFGEM, will also have to report to the Scottish Parliament.

See Scottish Energy News http://goo.gl/Ha73s9

Meanwhile, Scottish Energy News is preparing to publish a Special Edition – Warm Homes, and UK Energy Tariffs’ 

Energy suppliers across the UK who wish to make sure their message is heard, read and seen by Scottish Energy News readers – including MSPs in the Scottish Parliament and Government – should now contact our Marketing Partner for advertising details and deadlines:

 

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