The great energy rip-off (and how you can avoid it)
By Martin Hickman, Consumer Affairs Correspondent
Consumers suffer as energy firms cash in on huge profits
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. One million families served by E.ON, ScottishPower and EDF Energy 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.
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. One million families served by E.ON, ScottishPower and EDF Energy 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.
Martin Hickman: Suppliers run rings around regulators
Britain's energy sector is failing. The infrastructure is old and crumbling, the proportion of climate-friendly renewables such as wind and solar is rumbling along at 5 per cent despite a 9.7 per cent target, metering is antiquated and bills are confusing and complex. And, perhaps the most immediate concern in a recession, bills are too high.
The Big Six energy suppliers don't need to collude to fix prices - they simply watch what their rivals are charging and tweak tariffs accordingly. They leave millions of people on expensive tariffs, leaving the juiciest rates for price-sensitive internet surfers.
They have little to fear from the regulator Ofgem. They have run rings around it, even managing to keep their outrageous right to inform customers of price rises two months later.
With the regulator in their pocket and a weak Government, they have almost complete control of the market. While the biggest six supermarkets - themselves subject to bitter claims that they stifle consumer choice - have 77 per cent of food spending and the biggest six banks and building societies have 94 per cent of current accounts, the Big Six energy suppliers have 99 per cent of customers. True, they have occasionally limited domestic rises when the oil price has spiked particularly spectacularly; not all years have been bumper ones.
Now, though, the trough in wholesale prices is so deep and is predicted to last so long, they are set for years of bonanza profits.
Even Ofgem has finally acknowledged bills are too high. But it ceded its last price controls in 2002, when it concluded that the market was working fine. At the start of 2008 it also insisted the market was working - before launching an investigation and finding £500m overcharging. Given its regulatory failure, only a customer exodus will sharpen competition. Last month two new operators, First: Utility and Ovo Energy, undercut the big boys by taking advantage of cheap wholesale energy.
Although the big suppliers have more expensive long-term contracts, almost everyone believes they could still cut bills. Some of their customers already pay hundreds of pounds less than others.
Ministers seem relaxed about prices, with only occasional harrumphing from the Department for Energy and Climate Change. Consumers don't have to be.
The Big Six energy suppliers don't need to collude to fix prices - they simply watch what their rivals are charging and tweak tariffs accordingly. They leave millions of people on expensive tariffs, leaving the juiciest rates for price-sensitive internet surfers.
They have little to fear from the regulator Ofgem. They have run rings around it, even managing to keep their outrageous right to inform customers of price rises two months later.
With the regulator in their pocket and a weak Government, they have almost complete control of the market. While the biggest six supermarkets - themselves subject to bitter claims that they stifle consumer choice - have 77 per cent of food spending and the biggest six banks and building societies have 94 per cent of current accounts, the Big Six energy suppliers have 99 per cent of customers. True, they have occasionally limited domestic rises when the oil price has spiked particularly spectacularly; not all years have been bumper ones.
Now, though, the trough in wholesale prices is so deep and is predicted to last so long, they are set for years of bonanza profits.
Even Ofgem has finally acknowledged bills are too high. But it ceded its last price controls in 2002, when it concluded that the market was working fine. At the start of 2008 it also insisted the market was working - before launching an investigation and finding £500m overcharging. Given its regulatory failure, only a customer exodus will sharpen competition. Last month two new operators, First: Utility and Ovo Energy, undercut the big boys by taking advantage of cheap wholesale energy.
Although the big suppliers have more expensive long-term contracts, almost everyone believes they could still cut bills. Some of their customers already pay hundreds of pounds less than others.
Ministers seem relaxed about prices, with only occasional harrumphing from the Department for Energy and Climate Change. Consumers don't have to be.