Jeff Salway: Energy firms must be held to account over price hikes

The price hike announced by British Gas on Friday was an expected blow for which we were braced. For ScottishPower, however, it may have come as a relief.

In the month since it unveiled its own price increase - coming into force on 1 August - the supplier has waited in vain for others to follow its lead.

Instead, the time that lapsed between the ScottishPower and British Gas announcements gave the former's customers time to save money by switching elsewhere. Anecdotal evidence from price comparison sites suggests they did so in greater numbers than ever before. Other suppliers took the opportunity to keep their prices unchanged and attract as many disgruntled ScottishPower customers as possible.

That sounds like an obvious strategy, but it's unusual for one firm to change its pricing so far in advance of its rivals. Those rivals duly capitalised by resisting the temptation to make changes to their cheapest fixed rate tariffs, to which most switchers have moved. Consequently, Scottish Gas owner British Gas's announcement of price increases that will see the average dual fuel bill go up by 192 to 1,288 a year would have been warmly welcomed by ScottishPower.

It bore the brunt of the backlash and endured a scrutiny that British Gas largely escaped, although all of the big six suppliers had to face MPSs in Holyrood. That merely gave them the opportunity to reel out the usual fatuous excuses, which their interrogators seemed to accept. Those excuses usually involve playing down the amount of money they're making.

The overall business numbers are certainly healthy - obscenely so, in the context of domestic tariffs. Wholesale prices are about a third lower than their 2008 peak, despite recent increases. Yet during that time British Gas has raised prices by 44 and 21 per cent on gas and electricity, respectively.

Suppliers then point to the reduced profits made on their energy supply business, but that doesn't wash either. Segmental accounts published recently for 2010 show that five of the big six (with Scottish & Southern Energy excluded) collectively made 1.4 billion on energy supply, the bulk of which was accounted for by British Gas.

At least it was possible to reach a figure for 2010, unlike the previous year. Analysis published recently by Nera Economic Consulting found that in 2009 there were significant differences between the way suppliers reflected their costs in their accounts. Ofgem is clearly dubious about the way the 2010 information was presented as well, as it has ordered an independent audit.

So, MSPs could have drilled deeper on the issue of segmental profits. Another obvious angle is why suppliers didn't cut prices more aggressively in 2009 and 2010, when wholesale prices were lower and profits were, as always, plentiful.They should also be asked what they spent on their domestic environmental obligations in 2009 and 2010 and what they expect to spend this year. This has become a handy screen behind which they can hide, without having to be transparent. Figures showing the true cost of their environmental obligations would give us a much better idea of the actual margins they are operating within.

To be fair to MSPs, suppliers have developed a set of finely honed and inconsistent answers that they use to fudge the issue.

Ofgem has changed its tune of late, but it needs to back up its words with more action. The watchdog wants suppliers to open up their books and set out more clearly how their pricing is determined, aware that the issue is not only the price rises, but the way in which they are justified. Information which clearly sets out the cost of supplying energy and links that to household prices should be the starting point, yet it remains elusive.

Ofgem also wants to open up the market to greater competition to the likes of Ovo and First:Utility, and the government is cutting red tape for those firms in a bid to lower the barriers to competition.

So when will the other big suppliers follow ScottishPower and British Gas in raising prices? Joe Malinoswki, of TheEnergy Shop.com, believes we could be waiting until 28 July, when UK parliament goes into recess.

Suppliers these days need to let at least 30 days lapse between the announcement and the actual price increase, so the end of July would allow them to make both the announcement and the price hike without fear of political grandstanding and during the peak holiday season.

There's still time to switch before the market falls into line. But don't hold your breath for watchdog Ofgem to finally bare its teeth.