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Energy costs less for suppliers – but not for us

Energy costs less for suppliers – but not for us

Category: Gas and electricity

Updated: 12/06/2014
First Published: 12/06/2014

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Wholesale gas and electricity prices have been falling significantly over the last few months. In fact, at the beginning of June the price of gas for next day delivery reached its lowest level since September 2010 and is some 38% lower than this time last year, while the price of electricity has followed a similar pattern, falling by 23% year-on-year to reach the lowest level seen in four years. But, customers aren't seeing the benefit. That's why Ofgem has demanded that suppliers take action.

In a letter, the regulator called on the big six energy firms to explain to their customers what impact falling wholesale energy costs would have on their energy prices, and warned that failing to engage would further risk undermining public confidence – particularly if wholesale costs continued to fall. While Ofgem accepts that there are additional upward pressures on costs, such as Government schemes and energy network renewal, it said that the costs of wholesale power and gas dwarf these and make up just under half the total household bill.

It isn't just current prices that have dropped either – forward prices are falling too. Gas and electricity prices for the coming winter are around 16% and 9% lower respectively than they were last year, largely driven by the mild temperatures experienced last winter which has left gas storage at record levels. Consumers might be hoping that these lower costs will translate into lower energy bills, but suppliers have yet to indicate that they'll be reducing their prices to reflect their lower costs.

"It does not add up for consumers when the wholesale price drops yet they see no difference in their bills," said Citizens Advice chief executive Gillian Guy. "Energy companies need to make sure they pass on the savings they make when wholesale prices reduce. This would help relieve the pressure on stretched household budgets and send a signal to consumers that suppliers are treating them fairly."

It's hoped that bringing these price discrepancies to the foreground will have the desired impact, particularly if customers decide to look elsewhere, as ideally it could help bring competition back into the market. It's something that the industry wants to tackle too, and Ofgem is currently proposing referring the market to the Competition Markets Authority after a report confirmed that competition wasn't working as well as it could.

Ofgem Chief Executive, Dermot Nolan, commented: "The Big Six suppliers tell us that they think the market is competitive, but our research shows that consumer trust is low. 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."

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