Energy bills should be up to £145 lower, says Which?Tariffs fail to reflect energy wholesale costs

03 February 2015

Energy bill overpayment

Energy bills should be cut by up to £145 more, Which? research finds

Following recent cuts to gas prices announced by suppliers, new Which? research suggests energy bills could have been slashed further and sooner, saving consumers billions.

Which? analysis discovers energy bills have not kept in line with falling wholesale prices, costing consumers up to £2.9 billion over the last year – an equivalent of up to £145 per household on a standard tariff.

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Energy tariffs out of line

We analysed the costs to suppliers of buying wholesale energy since 2013 and compared this against what consumers have paid for wholesale costs through energy bills in the same period.

Our analysis suggests standard variable energy tariffs have not kept in line with falling wholesale prices over the past two years. In particular:

• We can see no justification for the increases to gas and electricity prices in late 2013, based on wholesale costs, which for gas prices alone is estimated to have cost consumers £421m per year.
• The recent cuts in Big Six standard gas tariffs of up to 5.1% should have been greater, between 8.8% and 10.3%, if they were to align with wholesale energy costs.
• Our figures show suppliers could reduce electricity prices by up to 10% – a saving of at least £1.6 billion a year to consumers on electricity standard tariffs.

Which? executive director Richard Lloyd said: 'Our analysis places a massive question mark over how suppliers have been setting prices over the last two years. They now need to explain to their customers why bills don’t fall further in response to dropping wholesale prices. Energy bills are consistently the top consumer concern so it’s about time people got a fair deal.

'While the competition inquiry should establish beyond doubt  whether the price people are paying today is right, consumers will now look to politicians of every party to set out how they’ll deliver fair and affordable energy prices in the future.'

Up to £145Annual cost to each householder due to energy suppliers not passing on wholesale cost reductions

How suppliers buy energy

There has been much debate about whether competition in the energy market is sufficient to incentivise suppliers to pass on the reductions in wholesale costs to their consumers.

In our research we used real market data to analyse the actual costs to suppliers of buying wholesale energy since 2013. We compared these against what consumers paid for wholesale costs through energy bills in the same period.

Fair Energy Price campaign

Our Fair Energy Prices campaign calls on the Competition and Markets Authority (CMA), as part of its current investigation into the energy market, to:

  • Investigate the best way for the regulator to establish a ‘price to beat’, so that consumers can trust that the price they pay is fair.
  • Require energy suppliers to use simple, directly comparable pricing, similar to petrol pump displays, so people can more easily compare prices and make the best choice if they switch.

We have submitted our analysis as fresh evidence to the ongoing CMA investigation and to the HM Treasury for its more recently announced inquiry.

Help us reach 140,000 signatures in our petition by signing up to our Fair Energy Prices campaign.

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