THE “big six” energy companies must explain to customers why falling wholesale prices have not resulted in lower fuel bills, the regulator said last night.
In a letter to the country’s biggest energy suppliers, Ofgem said that consumers were entitled to know what impact a “significant” fall in both gas and electricity costs in recent months would have on household bills.
The regulator said the companies’ failure to engage with consumers about wholesale prices, which are at a four-year low, risked undermining public confidence and trust in the market. Both Labour and the Conservatives have put concern over energy prices centre-stage in recent months.
Labour leader Ed Miliband used his keynote speech at his party’s conference to call for a 20-month energy price freeze, while Chancellor George Osborne’s Budget included a £7 billion cut in energy prices for businesses and consumers.
Last night, Ofgem said that, in early June, gas prices for next-day delivery reached their lowest level since September 2010 and were now around 38 per cent below this time last year. Prices for electricity reached their lowest level since April 2010 at the beginning of June, and were currently around 23 per cent lower than this time last year.
Ofgem said that “as far as we know”, the large suppliers had not explained the price drops to customers.
Dermot Nolan, Ofgem chief executive, said the large energy companies need to rebuild customers’ trust or risk losing them to other suppliers. The big six suppliers tell us that they think the market is competitive, but our research shows that consumer trust is low,” he said.
“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 pricing policies.
“If any of the companies fail to do this, consumers can vote with their feet. Independent suppliers are offering some of the cheapest tariffs on the market.”
The regulator added that while there were pressures on costs from government schemes to support environmental objectives – so-called “green levies” – the costs of wholesale power and gas “dwarfed” these and made up just under half the total household bill.
Richard Lloyd, executive director of consumer group Which?, said many customers felt the energy firms were putting profits before customers.
He said: “We would expect to see the companies behaving fairly and passing on lower costs to their customers. Big changes are needed to fix the big six so it is now for the industry to respond.”
The big six energy firms are British Gas, EDF Energy, Npower, E.ON UK, ScottishPower and SSE.
Last night a number of the companies denied the claims, saying that a range of operating factors had to be taken into account and that measures such as a price freeze had been introduced to protect customers.
Ian Peters, managing director of residential energy at British Gas, Britain’s largest supplier, said factors such as advance wholesale purchasing of energy and other costs had to be taken into account.
A spokeswoman for SSE said: “We announced in March a freeze on household electricity and gas prices until at least January 2016. This is the longest price freeze the competitive energy market has ever seen.”
In a statement, Npower said: “We constantly monitor gas and electricity wholesale markets, with the aim to offer our customers competitive tariffs.”
A spokesman for ScottishPower said a letter was being prepared in reply to Ofgem.
Ofgem is currently proposing referring the market to the Competition and Markets Authority (CMA) after a report confirmed competition is not working as well as it could be.