Consumer Focus is backing calls from concerned MPs for a Competition Commission investigation into whether the ‘big six’ energy companies are failing to pass on wholesale energy price cuts to consumers.
The consumer champion is supporting an Early Day Motion being tabled today (Wednesday 25 Nov) by John Grogan MP and is writing to all MPs asking them to back the motion. Consumer Focus wants a thorough investigation into the workings of the whole energy market.
Consumer Focus has warned repeatedly that there is room for significant price cuts from energy companies, and has called on suppliers to lower their prices.1 The watchdog has frequently voiced its concerns that, because price cuts are not being fully passed on, consumers are not getting a fair deal. Wholesale prices continue to remain low2, while retail prices stay high. Consumers are forced to suffer this situation because the energy market is all but bereft of real competitive pressures.
Robert Hammond, energy expert for Consumer Focus, said:
‘Millions of people are paying over the odds to heat their homes this winter, despite huge falls in the wholesale price of gas. A truly competitive market would ensure that when energy companies pay less to supply energy, customers pay less to receive it. Yet none of the big six energy companies are breaking ranks and passing on lower wholesale costs to their mainstream customers.
‘The energy market is broken and will not fix itself. The Competition Commission is the resource available to regulators and government for such a failed market. A detailed examination by competition experts is the way to identify the necessary remedies and the steps to implement them.’
Major problems with the energy market are limiting competition and making it impossible to ensure pricing is fair. Wholesale and domestic electricity supplies now largely come from different arms of the same companies. This leaves the sector dominated by a small number of players who can self-supply their own electricity, with a lack of transparency over this relationship. The limited volume of trading, particularly in electricity, also restricts competition and prevents new companies from entering the market.
These are deep-seated and complex issues of market structure. That is why Consumer Focus believes that Ofgem or the Secretary of State must refer the GB gas and electricity market to the Competition Commission in order to revive the competitive spirit in these markets.
ENDS
Notes to Editors:
- Research by Consumer Focus in June 2009 estimated that price cuts of at least 7.4% for gas, and 3.1% for electricity could be made by energy suppliers to reflect decreased wholesale costs. These estimates took into account the purchasing strategies of energy companies and additional costs faced by the firms, such as environmental costs for renewable energy and carbon capture and storage.
- Following Consumer Focus’ research in June, wholesale energy prices continued to decline, reaching a three-year low in September. Although slightly increased from September wholesale costs, and the hedging strategy costs faced by suppliers, currently remain low.
- Consumer Focus is the independent champion for consumers, created from the merger of energywatch, Postwatch and the National Consumer Council (including the Scottish and Welsh Consumer Councils). We are the voice of the consumer, and work to secure a fair deal on their behalf.
Factfile:
- The average energy bill is currently £1,239 per year, based on a medium user paying by standard credit.
- Gas bills rose by 51% last year and electricity by 28%, yet they have only come down by 6% and 8% respectively this year.
- Wholesale energy prices are now 44p/th for gas and £40/MWh for electricity, declining from their peak of 99p/th in July 2008 and £92/MWh in September 20008 respectively.*
- Consumer Focus estimates that 6.6 million UK households are now likely to be living in fuel poverty – spending 10% or more of their income on energy bills.
- Consumer Focus research has shown that fewer than one in ten people regard energy companies as treating their customers well.
* Please note – basic wholesale costs do not wholly reflect suppliers’ costs. The suppliers use purchasing strategies which usually involve them buying some of their energy in advance, and also face additional costs for environmental measures. So the price they pay will be different, and may be higher, than the current market wholesale price.
