Energy firms told to explain lack of price cuts

11 June 2014

The Big Six should explain to millions of hard-up families why their energy bills haven't fallen despite a reduction in wholesale prices, the regulator has said.

Ofgem has written to the UK's biggest gas and electricity suppliers, calling on them to explain why savings haven't been passed on to consumers, an issue which "further risks undermining public confidence in the energy market," if prices continue to fall in the way they have done over the past 12 months.

Next-day gas prices are around 38% lower than they were a year ago, the lowest level since September 2010, while electricity prices were 23% down, the regulator said.

Long-term prices – companies tend to buy energy in advance – have also dropped with gas and electricity prices falling 16% and 9% respectively, with the mild winter across Europe leaving gas supplies at record levels.

The regulator added that while firms face additional costs in network charges and green levies, "the costs of wholesale power and gas cost dwarf these and make up just under half the total household bill".

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Low customer trust

Ofgem 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.

"If any of the companies fail to do this, consumers can vote with their feet. Independent suppliers are currently offering some of the cheapest tariffs on the market."

Energy UK, the energy industry's trade body, said the wholesale price can take a period time to be passed on to consumers as companies by their energy in advance.

In response to the letter, it, said: "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. The industry is committed to openness and will be answering the questions on wholesale prices to their customers and to the authorities."

Ofgem has proposed referring the energy retail market to the Competition and Markets Authority after a joint report with the Office for Fair Trading found it wasn't working as well at it should be.

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