The government should investigate why energy companies are not passing on price cuts to customers, Consumer Focus has demanded. It has written to all MPs to ask them to back an Early Day Motion being tabled today [25 November] by John Grogan MP calling for a Competition Commission investigation into whether the ‘big six’ energy companies are failing to pass on wholesale energy price cuts to consumers.
“Millions of people are paying over the odds to heat their homes this winter, despite huge falls in the wholesale price of gas,” pointed out Robert Hammond, energy expert for Consumer Focus, the independent champion for consumers, created from the merger of energywatch, Postwatch and the National Consumer Council.
Millions paying too much for their energy bills
Families across the country got major shocks last year when they got their gas bills with prices soaring by 51 per cent. The shocks didn’t stop there as electricity charges soared 28 per cent in 2008. There has been some good news this year as gas bills have fallen by 6 per cent and electric bills by 8 per cent. But that’s little comfort to hard-pressed folk struggling to pay their heating and power bills.
In fact the average energy bill – for a medium user paying by standard credit - is currently £1,239 per year. *That’s much more than many people can afford leaving an estimated 6.6million UK households living in fuel poverty – in other words, being forced to spend at least a tenth of their income on energy bills.
While it’s a good idea to shop around for cheaper energy suppliers – and recent cost-cutting by some companies could mean you can get a better deal – prices are still much higher than they need to be, say critics backing the Early Day Motion.
Critics launch action against excessive energy bills
They point out that energy companies are paying less than half the price for gas and electricity than they were a year ago, and prices for consumers should have fallen by much more. Wholesale gas prices – the cost to the energy firms – has fallen from a peak of 99p/th in July 2008 to just 44p/th. Wholesale electricity prices have similarly shrunk, falling from £92/MWh in September 20008 to just £40/MWh now.
Even although domestic energy costs are not related directly to wholesale prices for a variety of factors, recent research by Consumer Focus showed that price cuts of at least 7.4 per cent for gas, and 3.1 per cent for electricity could be made by energy suppliers to reflect the decreased wholesale costs. The estimates took into account all the relevant factors affecting pricing, such as the purchasing strategies of energy companies and additional costs faced by the firms, such as environmental costs for renewable energy and carbon capture and storage.
“A truly competitive market would ensure that when energy companies pay less to supply energy, customers pay less to receive it,” said Hammond. “Yet none of the big six energy companies are breaking ranks and passing on lower wholesale costs to their mainstream customers.”
He believes that there is room for significant price cuts from energy companies, but prices will remain high unless the Government steps in because there’s no real competition in the energy market.
That’s because the sector is dominated by a small number of companies which can self-supply their own electricity. In effect they can set their own prices. The limited volume of trading, particularly in electricity, also restricts competition and prevents new companies from entering the market, Consumer Focus says.
“The energy market is broken and will not fix itself,” warned Hammond. “The Competition Commission is the resource available to regulators and government for such a failed market. A detailed examination by competition experts is the way to identify the necessary remedies and the steps to implement them.”
If enough MPs support the Early Day Motion, the government will be forced to act. Energy users should also consider acting themselves now by switching to a cheaper supplier, if they can find one.
*Consumer Focus
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