Big Six customers 'overcharged by £2.9bn'

Which? report finds no justification for increases in gas and electricity prices in late 2013

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The Independent Online

The big energy companies are cutting gas prices but still overcharging consumers by £145 a year, analysis shows.

Their recent flurry of price cuts are half as much as the savings they made in the wholesale gas market while energy firms are also accused of failing to pass on cuts to electricity bills despite being able to reduce electricity prices by 10 per cent.

And the price increases in winter 2013 were unnecessary, the report concludes, adding millions to UK bills while boosting profits by the same amount.

Their refusal to pass on the full extent of price drops in the wholesale cost of gas and electricity has cost UK consumers £2.9bn over the last year.

The new allegations of profiteering by the Big Six suppliers have been made by consumer group Which?. It researched suppliers’ costs of buying wholesale energy since 2013 and compared it against the price consumers have been charged.

It concluded that there was no justification for the increases in gas and electricity prices in late 2013. That increase alone cost consumers an extra £421m per year on their gas bills.

Meanwhile the recently-announced gas cuts of up to 5.1 per cent – some of which have been delayed to as late as the end of April - should have been greater, between 8.8 per cent to 10.3 per cent. That’s equivalent to a decrease of between £777m and £907m a year.

The calculations suggest suppliers could cut electricity prices by up to 10 per cent, which would be a saving of at least £1.6bn a year.

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.”

The energy industry hit back by pointing out that suppliers buy gas and electricity often years ahead and so may not have benefited from falling wholesale prices. Lawrence Slade, chief executive of Energy UK said: “Costs are coming down but, because energy companies buy ahead to fix prices and to plan with certainty, the gas and electricity we are using today has already been paid for.”

He also questioned the consumer group’s sums. “The Which? calculations are based on very many assumptions. Each company allocates their costs differently and this makes it difficult to estimate wholesale costs and hedging strategies. Indeed, Which?’s hedging assumptions for 2013 are different from Ofgem’s report based on the companies’ actual accounts.”

Which? has submitted the analysis as fresh evidence to the ongoing Competition and Markets Authority’s investigation into the energy market.

“The competition inquiry should establish beyond doubt whether the price people are paying today is right,” said Mr Lloyd.

Today’s accusations follow last Friday’s predictions from energy watchdog Ofgem that gas and electricity firms’ profit margins will climb from £105 to £114 per customer over the next 12 months despite planned price cuts.

Timetable of the price cuts

13 January – E.on: bills cut by 3.5%

11 February – EDF: bills cut by 1.3%

16 February – Npower: bills cut by 5.1%

20 February - Scottish Power: bills cut by 4.8%

27 February - British Gas: bills cut by 5%

30 April – SSE: bills cut by 4.1%