Energy bills unlikely to fall this winter

18 September 2009

Consumers are unlikely to see a cut in the cost of their electricity or gas bills this winter despite a fall in wholesale energy costs for suppliers.

The big six energy companies have told energy regulator Ofgem there is little chance of any cuts in their tariffs over the coming months, while some hinted prices may have to increase next year.

Wholesale energy costs account for 60% of customers’ bills but the energy giants claim that other costs which make up the remainder of consumer bills are rising sharply.

Last month, Ofgem wrote to the British Gas, EDF Energy, E.ON, RWE, Scottish and Southern Energy and Scottish Power telling them they "owe it to their customers to better explain their pricing position to them".

Ofgem’s latest quarterly report, published on Friday, shows supplier margins between wholesale and retail prices in August  increased for both electricity and gas to £80 and £110 per customer respectively. 

Depending on how good the companies were at buying their energy in advance, the energy watchdog says falling wholesale electricity costs over the past six months would have shaved the equivalent of £29 per customer’s annual bill and £59 per customer’s annual gas bill.

It said the wholesale costs suppliers face for dual fuel are projected to decrease by around £85 over the next six months, equivalent to 7% of customers’ bills. 

The regulator estimates the gross profit of each of the big six firms for the next year will amount to an average of £170 per dual fuel customer.

This compares to an average gross profit of £110 over the past three years.

However, wholesale costs are expected to start rising again from the second quarter of next year.

Ofgem admits suppliers also face a wide range of other costs other than the price of wholesale energy. 

"Many of these, such as the cost of environmental commitments and network charges, are outside of their control and are passed on directly to consumers’ bills. These have increased from £335 to £360 for a dual fuel customer over the last year and now make up approximately 30% of the customer bill," the report says.

Supplier RWE told Ofgem that retail prices cannot be based only on a "narrow view" of wholesale costs and wholesale costs need to be weighed against increases in other costs.

However, consumer group Consumer Focus says energy suppliers do have scope to cut prices this year despite volatile wholesale markets and environmental costs.

"There’s a grim predictability about Britain’s energy suppliers. In spite of increased margins and lower wholesale gas prices, there is the inevitable talk of higher domestic bills," says Robert Hammond, energy expert at Consumer Focus.

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