Energy firms keep £1bn cost savings from customers

ENERGY companies have been accused of overcharging customers by more than £1 billion by exploiting changes in gas and electricity prices.

Millions of households are paying an estimated £200 a year over the odds for fuel because firms are quick to pass on price increases when their wholesale costs rise but slow to cut prices when costs fall.

Last week Npower, Britain’s fourth largest supplier with 6m customers, raised the price of gas by 17.2% and electricity by 12.7%, blaming the sustained rise in wholesale energy costs since September. All the other big suppliers, including British Gas, the market leader, are expected to follow suit with increases of 10% to 15%.

However, when wholesale prices started falling in January 2006 it took the energy firms more than a year to start cutting customers’ tariffs - and, according to analysts, they did not reduce bills by as much as they ought to have done.

Joe Malinowski, of price comparison website TheEnergy Shop.com, said: “This industry has never passed on the full benefits of the falls in 2006, but has been very quick to pass on the latest increases.”

Analysts at another price comparison website, Energyhelpline.com, said consumers should have benefited from an additional 10% price fall last year, before tariffs started to increase again.

They calculated that household gas bills ought to have fallen by 30% in 2006, while electricity rates should have been cut by about 8%. In fact, gas bills went down by an average of 12.3%, while electricity costs fell by 3.8%.

Mark Todd, of Energyhelpline.com, said: “With the suppliers having failed to pass on the price drops from the wholesale market in 2006, the latest increases are not justifiable. Consumers are already paying at least £1 billion more than they should be.”

The disclosure comes as John Hutton, the energy secretary, said consumers faced the prospect of long-term rises in power bills as a result of measures to curb climate change emissions and improve energy security.

“A lot of what we are proposing will depend on the European emissions trading scheme, under which power generators will pay a price for emitting CO2,” said Hutton. “If the price is high enough then that will change the economics of nuclear power. There are likely to be long-term increases, but our power prices are among the lowest in Europe.”

Prices in Britain have, however, been rising much more rapidly than in the rest of Europe and Energywatch, the consumer watchdog, said comparisons between price levels in different countries were notoriously difficult.

The comparison firm uSwitch says suppliers withheld £177 in price cuts from every household in Britain last year. Npower, whose average dual-fuel bill now costs more than £1,000 a year, did not start cutting tariffs until April 2007 – a year after wholesale prices started falling.

The cut itself was announced in February 2007, so it took the firm almost 10 weeks to pass on the savings. The latest price rise - announced on Friday - came into effect a day later.

Malinowski points out that Centrica, the parent company of British Gas, announced a £533m operating profit in the first six months of 2007 and was making a 15% mark-up on wholesale and supply costs.

“This is an extraordinary margin which suggests it kept a large chunk of the wholesale market falls for itself,” he said.

A spokesperson for the Energy Retail Association said: “Britain’s energy suppliers buy their stock of electricity and gas years and months ahead of the day that they sell it to people’s homes.

“This is the reason that we have a time lag before changes in the wholesale price are fed through to customers. Let’s remember there was a substantial delay before energy suppliers passed on the rises which started four years ago.”

Ali Hussain and Jonathan Leake
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