Households still ‘owed’ over £3bn in energy price cuts

Latest research shows that suppliers are still withholding £177 in price cuts from every household despite 15 months of consistently low wholesale prices.

But, with three quarters of households (78%) not making full use of competition and concerns that suppliers will use the seasonal variation in wholesale prices over the winter months as an excuse to hold off from making any more cuts, uSwitch.com asks: when are consumers going to get their money back?:

Energy prices soared by £277 (38%) between 1st January 2006 and 1st January 2007, but price cuts this year only add up to £100, despite a 56% decrease in wholesale energy prices.

15 price rises last year added £4.8 billion to consumers’ energy bills, yet price cuts this year have only shaved off £1.7 billion.

Wholesale prices have plummeted by 59% for gas and 53% for electricity, but bills have only fallen by 13% for gas and 5% for electricity (far short of the30% and 22% expected respectively).

Winter wholesale prices cannot be used as a red herring – they are usually around 20% higher.

Only 5.8 million households are making effective use of competition.

British consumers have been left over £3 billion out of pocket because of inadequate price cuts made by energy suppliers, reveals uSwitch.com, the independent online comparison and switching service. Reductions this year have shaved £100 or 10% off the average energy bill. However, bills rose by £277 or 38% between January 2006 and January 2007 – which means that suppliers are still pocketing an extra £177 per household.

When wholesale prices went up, consumers bore the brunt with 15 price rises, which generated an estimated £4.8 billion for suppliers. Wholesale prices have since plummeted by 56%, but household energy bills have only fallen by 10% instead of the 27% which uSwitch.com calculates should have come off household energy bills. This has put £1.7 billion back into consumers’ pockets, while suppliers have kept hold of more than £3 billion.

Further cuts were predicted following the price war earlier this year, but so far they have failed to materialise. The last price reductions – EDF Energy’s 10% cut on standard gas tariffs and ScottishPower’s 11% reduction on gas and 5.5% on electricity – were implemented on 15th June. While suppliers may have needed to delay passing on the benefits of wholesale price reductions to consumers because they themselves were locked into higher price contracts, these contracts should have come to an end by now leaving suppliers free to reduce prices again.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: “Predictions that wholesale prices could be on the rise again, based on run-of-the-mill seasonal variations, are the ‘get out of jail’ card suppliers are waiting for. It will only be a matter of time before they use this as a ‘reason’ for not cutting prices again.

“The fact is that energy companies are well positioned to cut prices again. They’ve enjoyed a good 15 months of consistently low wholesale prices and now there’s nothing left standing in their way - any wholesale contracts they were tied into that could reasonably have prevented them from dropping energy prices will have come to an end by now.

“The clock is ticking and consumers could see this window of opportunity slammed shut in their faces unless they continue to force the issue with suppliers. The price war kicked off because of consumer power - British Gas, the first supplier to cut prices, did so in response to losing over 1 million customers, and then the other suppliers followed suit. Consumers now need to keep the pressure on and make competition work for themselves.”

However, despite widespread publicity over falling prices and the broad range of energy deals available, recent uSwitch.com research suggests that consumers are still not fully engaged in the market. Only one in eight households are on the cheapest energy plans offered by suppliers, 2.4 million (19%) dual fuel households are wasting almost £174 million by not paying energy bills by direct debit and 4.2 million households are missing out on £42 million by not moving to a dual fuel plan.

So far, 13 million households in the UK (51%) have switched energy supplier, but there are still 9.3 million who have never done so. More importantly, if there is to be effective competition in the UK energy market consumers need to be switching regularly – not once in a lifetime. But only 5.8 million households have switched more than once. More worryingly, whole groups of consumers are missing out on the benefits of competition – over two thirds (69%) of the over 60s have never switched.

Ann Robinson concludes: “Competition is not a spectator sport – it will only work if consumers and suppliers get stuck in. The best chance people have of seeing lower bills will be through taking action themselves and moving to a cheaper supplier. The benefits will be twofold - while price cuts to-date amount to £100, a consumer could save over £200 by switching from their incumbent supplier to the cheapest dual fuel plan. But also, by voting with their feet, consumers may force suppliers to cut prices again.”