The Big Six energy firms have been accused of overcharging consumers by the watchdog. Ahead of the results of an eagerly-anticipated Competition and Markets Authority investigation, Ofgem chief executive Dermot Nolan yesterday told the BBC: “The market is not working as competitively as it should be.”
He was reacting to growing anger about energy giants’ not passing on large cuts in wholesale prices to consumers.
Earlier in the week the ICIS Power Index had revealed that wholesale gas and electricity prices for the UK are at a five-year low after falling 23 per cent in the last year.
The combined cost of energy on the wholesale market has fallen to £35.54 per megawatt hour, according to data from the market intelligence firm.
Meanwhile a report from comparison site Energyhelpline showed that wholesale gas prices dropped 51 per cent while electricity prices fell 33 per cent over the last two years.
"This could have been passed through as price cuts of around 25 per cent on gas and 11 per cent on electricity for UK households, yet all customers have seen is an average of 5 per cent off gas bills and nothing off electricity bills," pointed out Mark Todd from the comparison site.
In fact British Gas was the only big six energy giant to reduce prices when wholesale costs fell last summer, and then it was just 5 per cent off gas bills. The other big six firms firms EDF, E.on, Npower, Scottish Power and SEE decided against passing on any savings to their customers.
The Ofgem boss agreed the cost saving should have been passed on. He said: “We really should be seeing bigger retail cuts than we have seen so far.”
When asked if energy firms are ripping customers off, he responded: “I think they are overcharging in many cases,” adding: “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.”
It’s the continuing lack of any apparent real competition in the domestic energy market that led the watchdog to refer the market to the Competition and Markets Authority last year and it’s due to reveal the results of its investigation “in the very near future”, according to Mr Nolan.
Anger at the lack of action from energy companies has become widespread. 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."
Which? executive director Richard Lloyd said: "It's extremely disappointing millions of us are still paying way over the odds for our energy. Consumers will rightly ask why their bills haven't been cut dramatically when wholesale costs have dropped."
Defending the energy giants Lawrence Slade, chief executive of industry body Energy UK, said: "Energy companies are bringing down their prices with cheaper tariffs launched almost every week. Wholesale prices make up less than half of the average bill and the majority of the rest falls outside suppliers' control so there will always be a difference between wholesale price falls and what customers actually pay."