Energy price reductions won't cut it

Posted by petespeller — 17 January 2012 at 4:35pm - Comments
All rights reserved. Credit: Greenpeace

Over the last two weeks all of the Big Six energy companies - E.On, RWE, nPower, British Gas, EDF, Scottish Power, and Scottish and Southern Energy - have announced reduction in their prices for gas or electricity. However, our analysis of the reductions in wholesale prices compared to the retail prices show that the Big Six are not passing on the fulls savings to their customers.

Last year, all of the Big Six companies increased their prices by an average of 17 per cent for gas and 10 per cent for electricity as, they claimed, the wholesale price for energy had increased.

But wholesale prices have recently come down, so they should have cut prices even further. Our analysis shows they should have been cut by an average of 8.4 per cent for gas and 10.7 per cent for electricity. However, what we have seen is an average decrease of just 3.25 per cent for gas and 1.83 per cent for electricity.

With 90 per cent of UK households supplied by one of these suppliers, they're exploiting their hold on consumers to increase their profits. They have been repremanded by energy regulator Ofgem for failing to pass on reductions in wholesale prices to consumers as quickly as they push them up.

Key to this issue is a lack of transparency in the way the Big Six energy firms buy gas and electricity. This makes it almost impossible for consumers to know whether or not they are paying a fair price for gas and electricity. This has led Ofgem to conclude that a team of forensic accountants is needed to go over the books of these companies.

Even industry analysts are not impressed. Peter Atherton of Citibank has said he doesn't think energy companies are playing fair:

All the Big Six retailers have now cut either their electricity or gas tariffs by [about] five per cent. What is noticeable about the price reductions is they have been on just one fuel
type, and for the one that is least important for the company involved (EDF gas,
Centrica electricity etc). This suggests to us that these companies are attempting to
gain good media coverage without any noticeable impact on outlook.

To make sure the energy companies are not taking all of us for a ride, the government needs to sort a few things out, such as ensuring that measures to help households and industry use less energy are at the heart of its upcoming reforms to the energy market - energy efficiency is, after all, the quickest and cheapest way of bringing bills down.

Speaking of reforming the energy market, it needs to be opened up to allow in new suppliers to end the stranglehold that the Big Six utilities currently have and encourage new investment. That includes providing support for clean energy to reduce our reliance on gas, which would also bring new manufacturing industries and jobs to UK.

And David Cameron needs to take personal responsibility for protecting consumers from high energy prices. After all, winter's here for a while yet, along with the higher fuel bills that go with it.

We want cheap energy, but we also want the right kind of energy. What we really need to see is a shift away from fossil fuel based energy and the inefficient way in which this is used, towards clean renewable energy and well insulated homes. Increased energy efficiency is key to ensuring that we reduce our bills at the same time as bringing down emissions, meaning that we do not needlessly pour money into the pockets of the big six energy firms. The volatile nature of wholesale gas prices means that, unless we do something about it, people in the UK will always be stuck on the gas-price rollercoaster. Renewable energy and increased energy efficiency are key to ensuring that consumers are less and less at the mercy of international gas markets, get the most out of energy they pay for, and reduce climate change emissions.

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