Consumers lose out as energy prices remain at inflated levels

British consumers are being left out of pocket to the tune of £4.4 billion following the recent round of energy price cuts, reveals uSwitch.com.

Recent price reductions will chip away £78 or 8% from the average energy bill. However, bills rose by £277 or 38% since January 2006 – which means that suppliers are still pocketing an extra £200 per household.

Wholesale prices have now fallen to similar levels to those of pre-winter 2005. At the end of 2005 consumers were being charged £735 for their energy, £200 less than the current average bill of £935. If energy costs truly track wholesale prices as the suppliers say, then prices should now also fall to a similar level. This would mean suppliers cutting prices by a total of £277 or 27% - more than treble the cuts of £78 or 8% they have actually made to date.

Although consumers will be grateful for the £78 respite, the cuts mean that £1.7 billion will be handed back to households, leaving a potential £4.4 billion left on the table.

This is also removing a potential lifeline from the nearly 4 million now suffering fuel poverty, 1.16 million of whom were pushed into it by price increases implemented since January 2006. Recent price cuts will only be enough to lift 463,000 people out of the trap where they are forced to choose between heating and eating. Although the energy industry is planning to spend £700 million over the next three years to tackle the issue, this amounts to only 1.2% of the £19 billion combined profits made by the Big Six’s parent companies, raising serious doubts over the industry’s commitment.

But the inadequacy of the price cuts isn’t the only grey area. Another question is being raised over who should be benefiting from the cuts and whether there is any reward for loyalty.

Judging by the biggest supplier’s actions, the answer is no. British Gas now has the most expensive standard tariff out of the four suppliers who have cut their rates this year so far. At the same time it also has the cheapest online rate in the market, but this is only available to customers who sign up to it online and is not automatically given to existing standard customers. If they want the cheaper rate, they have to apply for it online along with everybody else.

Because of this, a loyal customer on a standard tariff could be paying £953 for their energy, compared with the £755 a new online customer will pay, even though the former is the one who stuck by the company when it put its energy prices up by £299 last year.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: “Waiting for energy companies to reward customer loyalty is like King Canute trying to turn back the tide – completely futile. Consumers want a fair deal, but they are still not getting one despite the hyped-up price cuts. It’s not unreasonable to expect some generous reductions now that wholesale costs have fallen. Instead, suppliers are handing back a derisory £78 and are using smoke and mirrors to obscure the fact that they are still pocketing an extra £200 per household.

“Suppliers are slapping loyal customers in the face by offering their best deals online, but not automatically applying the better rate to their existing customers. Some suppliers will allow existing customers to switch across to their better deals, but the onus is on the customer to take action. The suppliers are relying on apathy and on existing customers sticking with them regardless, even though they could not be making it clearer that there is no reward for loyalty. While they continue to believe that they can treat customers with such impunity there will be no incentive for them to change.

“Consumers must start helping themselves by shopping around for a better deal – the UK could save up to £2.25 billion if the 10 million switching virgins took action. Switching will reward the suppliers putting more pounds back into people’s pockets and punish the ones that aren’t. It’s the only language that the energy suppliers understand and will prompt them to stop taking consumer loyalty for granted.”

Suppliers are already coming under pressure from consumers – switching numbers hit a high of 4 million last year – and a picture is already emerging over which suppliers are set to win and lose market share. Scottish and Southern Energy has revealed that it now has over 7.7 million customers – gaining one million since 1st April 2006. It puts this success down to its responsible energy pricing and its sector-leading customer service.

Its fortunes are in stark contrast to those of British Gas, which recently announced customer losses of just over 1 million – one customer lost every 20 seconds – and acknowledged that poor customer service had played a key part.

Ann Robinson, Director of Consumer Policy at uSwitch.com,says: “If consumers force the energy companies to compete hard for market share the companies will have no choice but to pull their socks up over customer service. They will no longer be able to indulge in anti-consumer practices, such as the back charging of vulnerable pre-payment customers, for fear of damaging their reputation and alienating customers. By voting with their feet consumers could achieve something that regulators, watchdogs and MPs have not – they could set down new priorities for an industry that has consistently put profits and shareholder value above customer service.”