The great energy rip-off (and how you can avoid it)

Consumers suffer as energy firms cash in on huge profits

Martin Hickman,Consumer Affairs Correspondent
Wednesday 07 October 2009 00:00 BST

Support truly
independent journalism

Our mission is to deliver unbiased, fact-based reporting that holds power to account and exposes the truth.

Whether $5 or $50, every contribution counts.

Support us to deliver journalism without an agenda.

Louise Thomas

Louise Thomas


Fuel bills have become a "scandal" as the biggest suppliers in the £25bn-a-year industry make vast profits supplying gas and electricity to Britain's 20 million families, independent experts say.

Today The Independent launches a campaign demanding that the "Big Six" power companies lower their prices, amid accusations that they failed to pass on cuts in fuel bills after the price of oil fell from last summer's record highs.

Utility companies put up power prices by about 42 per cent last year, or about £382 per household. Since then, the wholesale cost of gas and electricity has halved but bills have fallen by only 4 per cent.

Critics say there is too little competition between British Gas, E.ON, EDF Energy, Npower, Scottish & Southern and ScottishPower. The average domestic fuel bill paid by direct debit is £1,141 – but it varies by less than £20 between the six companies.

Over the past month, the mark-up charged by the established power suppliers has been exposed by two new operators who are taking advantage of rock-bottom wholesale gas and electricity prices to slash bills. First:Utility's typical tariff for bills paid online is £954, while Ovo Energy charges £978, a saving of £163 to £187 over the Big Six. Quarterly and pre-payment customers who switch to Ovo or First:Utility would save £287.

By contrast, millions of Big Six customers are languishing on standard deals far costlier than online tariffs offered to savvy customers who shop around.

Some of those expensive packages will hit home this winter when the two British-owned power companies reveal their profits to the City. Hundreds of thousands served by E.ON and ScottishPower will also find themselves paying up to £296 a year more for gas and electricity after their fixed tariffs ended last week.

As part of the "Great Energy Rip-Off" campaign, The Independent is encouraging its readers to switch supplier to spark greater competition. We are also calling on the Big Six to lower prices by 10 per cent, or about £125 a year, and urging ministers to remove the licences of suppliers that do not pass on falls in wholesale fuel prices.

Of the Big Six, four are owned by foreign corporations which have been accused of treating Britain like a "treasure island". They are expected to report vastly higher profits thanks to falling wholesale costs. While the firms were paying 85p per therm of gas last September, the price now is 35p. Electricity prices have fallen from £90 to £40 per megawatt hour.

According to a review by the Energy Contract Company, an independent energy forecaster, wholesale gas prices will stay low this winter and remain so for three years. "The fall in spot prices has meant the domestic market is now highly profitable," it said in its Gas Market Review, which put current profit margins at 20 to 30 per cent.

In August, the energy regulator Ofgem's request for price cuts was rejected by suppliers who warned that they might even raise bills. Using confidential commercial data, Ofgem – which has been accused of treating the Big Six too leniently – estimated that while they usually made £110 per year on "dual fuel" customers who obtained gas and electricity from one company, this year they would make £170 per customer – an increase of 55 per cent.

According to a "conservative" estimate by the campaign group Consumer Focus, bills are about £100 too high. But an independent energy expert, David Hunter, said that given Ofgem's "caution" he estimated that a figure of £120 a year was more accurate.

"The failure of the suppliers to pass on the massive reductions in energy prices... is approaching scandal proportions," said Mr Hunter, of Britain's biggest independent energy analyst McKinnon & Clarke. "Some suppliers have recently made small reductions to niche tariffs. However, these token discounts are only open to direct debit and online customers and do not change the overall trend."

Last year, Ofgem dismissed any suggestion that the power companies were colluding to fix prices. However, after initially insisting that the market was working, the regulator's Energy Supply Probe found that pre-payment and electricity-only customers were being overcharged by £500m. Energywatch, the disbanded consumer body, blamed a lack of competition.

As a result of takeovers since privatisation in the 1980s, the number of household power suppliers has fallen from 20 to six. EDF Energy, E.ON, ScottishPower and Npower have been taken over by overseas corporations, making them more resistant to national pressure to lower bills.

Confusing bills from the firms, which have a baffling array of 4,000 different tariffs, also make customers less likely to search for a better deal.

The Government urged firms to lower prices this spring, but since then ministers have been quiet and the Department for Energy and Climate Change has issued no press releases on household bills all year. The Big Six, which control 99 per cent of the domestic market, are likely to face new pressure later this year as they reveal bumper earnings. This month, Scottish & Southern is expected to announce interim profits of almost £600m – twice last year's figure.

Save up to £380 by switching your energy provider with Independent Compare

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in