Why aren't energy bills falling, asks energy regulator

Ofgem writes to Big Six to ask them to explain what effect the falling wholesale cost of gas and electricity will have on their energy prices



Energy regulator Ofgem has piled pressure on suppliers to cut prices in the wake of significant falls in wholesale gas and electricity costs, warning them their failure to do so will be seen as evidence the market is not competitive.

The regulator has written to suppliers demanding they "explain to their customers what impact falling wholesale costs will have on their energy prices".

Experts have estimated that suppliers could afford to cut prices by £77 or 6 per cent in light of the lower wholesale costs after the mild winter.

Ofgem on Tuesday said that short-term gas and electricity prices were at their lowest level since 2010. Gas prices had fallen 38 per cent since this time last year while electricity prices were 23 per cent below the level last year. Long-term prices - those at which suppliers buy much of their energy - had also fallen.

"Compared with last winter, gas and electricity prices for the coming winter are around 16 per cent and 9 per cent lower respectively than last year," it said.

The regulator said that while green levies and network charges were increasing costs to suppliers "the costs of wholesale power and gas dwarf these and make up just under half the total household bill".

"In a competitive market the threat of losing market share would encourage suppliers to reduce their customers’ bills whenever there are sustained reductions in costs. Suppliers are yet to reduce their prices for existing customers to reflect the wholesale cost changes," it said.

In a letter to suppliers Dermot Nolan, Ofgem chief executive, warned that "if that is not happening, it could be seen as further evidence that competition is not working for consumers as well as it should be".

The threat comes after Ofgem called for a full Competition and Markets Authority probe into the energy supply market on the grounds competition is not working properly, raising the possibility that suppliers could be broken up.

Mr Nolan said: “The Big Six suppliers tell us that they think the market is competitive, but our research shows that consumer trust is low.

"Therefore 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. Independent suppliers are currently offering some of the cheapest tariffs on the market."

Separate analysis of the falls in wholesale prices by price comparison site energyhelpline suggested that since suppliers raised prices last autumn wholesale prices had risen on average by 15 per cent.

Mark Todd, director of energyhelpline said: “By our calculations, suppliers could therefore pass through a price reduction of £77 (6 per cent) to a typical household bill.

"This would bring down a typical energy bill from £1,315 a year to £1,238 a year giving some respite at last to hard pressed families who continue to struggle to make ends meet. Across 26 million homes this equates to £2 billion.

"For too long energy customers have got a rough deal from suppliers with prices rising rapidly when wholesale prices go up but coming down very slowly when wholesale prices drop.

"Now is the chance for the suppliers to show that they have changed and to pass on the savings that they are getting. Now is the time for the suppliers to start to restore trust. I urge them to cut their prices soon.”

Ofgem is a toothless tiger. The very fact the the regulator is asking the question proves his ineffectiveness.

The word "tiger" is a bit of strong, I'm thinking "doormat" or "arse-wipe" is a more appropriate description for Ofgem?