Energy suppliers are overcharging customers by an average of £74 a year by failing to pass on the cheaper cost of crude oil, an independent consumer watchdog has claimed.
Consumer Focus, which campaigns for fairer deals for consumers, estimates that energy companies will rack in £1.66 billion this year as a result of overcharging households. It believes that current gas bills should be at least 7.4% cheaper while electricity should be cut by at least 3.1%.
“The companies are pocketing £1.6 billion extra, while millions of households struggle to make ends meet,” says Philip Cullum, deputy chief executive of Consumer Focus. “Energy firms should take immediate action to put things right for their customers.”
However, the Energy Retail Association, which represents suppliers, and the regulator Ofgem refute the claims.
Chief executive Garry Felgate argues that energy bills include the cost of transporting gas and power as well as meeting the government’s carbon emissions reduction targets – both of which have risen in price in recent years.
"The energy regulator, Ofgem has repeatedly looked at the issue of energy prices, and has concluded there is no evidence of energy suppliers increasing prices faster than they reduce them,” Felgate adds.
Ofgem says in a statement: "We are entirely confident in our analysis of wholesale and retail energy prices, which has been transparent and subject to wide consultation. We too believe that should wholesale prices continue to fall there will be pressure on companies to reduce their bills."
Consumer Focus claims it used the same approach as Ofgem in calculating the wholesale cost of gas and electricity. However, Ofgem disputes this: "We are concerned that its approach may mislead consumers and for customers’ sake hope it will be open about the analysis it has used to reach its conclusions."
The cost of crude oil has fallen from $147 a barrel in July last year to about $70. In 2008, many households saw their energy bills rise by as much as 50% in response to the high cost of crude oil. However, the cuts made in 2009 to take into account falling oil prices have been less dramatic (see table below).
Cullum says: “Consumers have feared for months that the big six suppliers might not have passed on the full cuts in wholesale energy prices, but the companies claimed to have acted fairly. Our new research for the first time shows the reality.”
It is a view shared by energy comparison services. Joe Malinowski, founder of TheEnergyShop.com, says there is a “big difference” between wholesale and retail energy prices.
Energy price movements
|The big six suppliers||Gas 2008||Electricity 2008||Gas 2009*||Electricity 2009*|
|British Gas||50% rise||24% rise||10% cut||10% cut|
|Scottish & Southern Energy||45% rise||33.4% rise||4% cut||9% cut|
|npower||43.2% rise||26.7% rise||n/a||8% cut|
|E.ON||41% rise||25.7% rise||n/a||9% cut|
|EDF Energy||34.9% rise||24.9% rise||n/a||8.8% cut|
|ScottishPower||49% rise||23% rise||7.5% cut||3% cut|
* changes to date (25/June/2009)