Energy bills are coming down. But they’re still too high. And possibly overinflated.

2 January 2014

british gasHappy New Year! And for British Gas customers it could be a happier new year than anticipated, as they announce a 3.2% price cut, effective yesterday, which will save £41 for the average bill. The reduction will apply to all customers, whether on fixed or variable tariffs.

Of course, given last November’s 9.2% rise, bills are still up 6%, or £74, on last year, but at least it’s a step in the right direction. British Gas has also announced an additional £12 customer rebate for the Government’s Warm Home Discount scheme, which will be applied at the end of 2014.

However, before you get too excited that energy companies are turning into businesses with a heart, the reduction is in response to the Government changing environmental and social levies that are paid through household energy bills. Nevertheless, not all firms are as quick to react, with other suppliers yet to announce similar reductions. SSE has previously announced that prices will not be cut until Spring 2014, while Npower and ScottishPower, who both increased prices in December, are yet to confirm when they will be passing on levy reductions to their customers, or if they will just be pocketing the extra cash themselves.

To further reinforce the image of the energy companies as the pantomime villains, shadow energy secretary Caroline Flint claims she can demonstrate that the big 6 energy firms, who supply 98% of households in Britain, have been buying electricity at a far higher price than they could get on the open market.

The problem is that, because it is a limited market with few players, energy companies are frequently supplying themselves with the energy from their own power stations. And when you are both buyer and seller, it’s easy to set your own price. After an investigation, Labour has concluded that this practice has resulted in energy firms paying almost £4bn more for their power than the average market rate, with the costs then passed on to consumers; Labour’s position is that the firms have been striking very expensive deals to the detriment of consumers.

Flint has calculated that the overpayment amounts to about £50 a year per household for the last three years for which data is available. “These figures reveal the full extent of the way consumers have been overcharged for their electricity," she said. "Energy companies always blame wholesale costs when they put up bills, but it now looks like they could have deliberately inflated prices to boost profits from their power stations.

However, Energy UK, the body representing the Big 6 energy firms disagrees, quoting complicated-sounded things like “reconciliation-by-difference costs” and “shaping costs” as reasons why the figures don’t agree with the calculated market rate. But then they would say that.

TOPICS:   Utilities

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