Pressure is mounting on the ‘Big Six’ energy firms to cut bills after the regulator Ofgem accused them of overcharging customers.
Dermot Nolan, the watchdog’s chief executive said “we really should be seeing bigger retail cuts” due to falling wholesale energy prices.
Bills should be cut by around £300 for the majority of people, he added.
The absence of major price cuts is due to a lack of competition in the energy market, Mr Nolan said as he encouraged consumers to switch suppliers to seek a better deal.
Asked if he thought energy should be cheaper, he said: “I believe it should – at least I believe it should for the vast majority of people. The biggest component of your energy bill is the wholesale cost – it’s approximately half the bill, maybe a shade under, it has fallen by nearly a third over the last year to year-and-a-half.
“We really should be seeing bigger retail cuts than we have seen so far.”
Asked why that was not happening, he said: “I think we are not, because the market is not working as competitively as it should be. The best protection for customers in the long run is a fully-competitive market. I don’t think it is, which is why we referred the market to the Competition and Markets Authority (CMA) who are due to report in the very near future.”
Pressed on whether the market was “ripping customers off”, Mr Nolan said: “I think they are overcharging in many cases.”
He added: “I think what they are consciously doing is charging as high as they think people will get, which is an endemic feature of any market, but the main protection for consumers is a competitive market.”
The CMA is investigating the market, which is dominated by the Big Six energy giants, but Mr Nolan said that, until the competition watchdog reported, the best advice for consumers was to switch tariffs or suppliers.
“The best protection consumers have currently is to try and switch,” he said, adding they could save up to £300.
Lawrence Slade, chief executive of industry body Energy UK, said: “There are a number of different companies out there. We have got 34 different suppliers out there. There are a range of different tariffs to suit different people’s options.
“As Ofgem say, we are fully behind getting people engaging in this market and getting people on the best deal.”
But he added that falling wholesale costs did not necessarily mean bills should be cut.
“Yes, they do represent a big chunk – around 45 per cent of the average dual-fuel bill is wholesale costs. What isn’t coming out is all of the costs that are added on to consumers’ bills that are outside of a supplier’s control.
“Some of those costs over the last year have actually increased, in one case by 20 per cent.
“When you look at that, and you look at a world where we are actually decreasing our consumption of gas and electricity due to energy efficiency measures, that reduces quite substantially the room that any supplier has to reduce bills at a time when wholesale prices are coming down.”
British Gas was the only Big Six provider to cut prices when wholesale costs fell last summer. They dropped by 5 per cent in August but the other five big firms – EDF, E.ON, Npower, ScottishPower and SEE – did not.
The company also launched a collective fix towards the end of last year which offered big savings to households. Research by Compare the Market showed a third of energy switchers in November headed to British Gas because of the attractive deal.
According to the ICIS Power Index, which analyses energy markets, the mild winter and lower commodity prices have led to drops in wholesale gas and electricity costs.
The report said UK power prices finished the year at five-year lows, and were down 23 per cent over the year.
Gas prices for delivery in the next year lost more value, down by 34 per cent over the same period to finish 2015 at the lowest levels in six years.
ICIS said the milder winter temperatures had helped to keep prices down, and more gas from around the world in the form of liquefied natural gas (LNG) was expected to come to the UK as production capacity increases this year.
Shadow energy secretary Lisa Nandy said: “The big energy companies are benefiting from falling gas prices and still too many families are paying massive energy bills. There could be no clearer evidence of why the energy market is broken and needs to be overhauled.”
Energyhelpline co-founder Mark Todd said: “Energy companies could be doing much more to slash prices.”