'Urgent' energy price cap extension considered

Higher costs no excuse for raising energy prices, says Ofgem

20 January

Energy suppliers have no excuse for increasing prices despite their costs now being substantially higher than this time last year, says regulator Ofgem.

An index this week, which "collates the impact of wholesale prices, network charges and… levies linked to government policies", revealed costs are 15 per cent higher than in January 2016, says the BBC.

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Most of that is due to an increase in wholesale costs following a recovery in oil prices, while around three per cent is due to government renewable energy schemes.

Despite this, Dermot Nolan, Ofgem's chief executive, said: "It's not obvious that there should be significant price increases across the market."

Nolan said energy firms typically hedge wholesale costs by buying energy up to 18 months in advance, a fact they used to explain why they did not follow a sharp fall in wholesale prices with consumer price drops in 2013.

Their standard tariffs, on which the majority of customers are housed, also did not fall despite costs falling considerably in 2015, says the Daily Telegraph.

"The key point energy companies make about hedging is that if costs are falling, you cannot expect retail bills to fall as quickly because they smooth out the market impact on bills. But it works the other way, too," Nolan said.

While three of the big six providers, EOn, British Gas and SSE , froze their prices for the winter, their standard tariffs could go up when that offer runs out in March or April.

EDF cut gas prices by 5.2 per cent on 6 January, but will raise electricity prices by 8.4 per cent on 1 March, says the BBC.

Some of the cheaper fixed-rate tariffs on the market have already gone up, but Ofgem said it should take time before the same happens with standard tariffs.

It added that in the meantime, it expects supplier costs to fall.

Which? campaigns director Vickie Sheriff said the regulator should use the index "to monitor suppliers and hold them to account to help protect customers from paying more than they need to for their energy".

Energy prices: Check this table to see if you're on a rip-off deal

22 December

More than 20 million people are overpaying for their energy, according to a report that came out last week. Energy regulator Ofgem says they are sitting on their energy firms standard deal and paying up to £260 more a year than if they moved to the same supplier’s best deal.

Ofgem has produced a table showing how many people are on each of the big supplier’s standard variable tariffs (SVT), what they are paying on average and how much more it is than the best deals.

"Millions of people continue to pay too much for their energy," the business and energy secretary, Greg Clark, told the BBC.

What's the problem?

The release shows that a huge number of consumers are languishing on expensive tariffs when they don't need to. For example, 74 per cent of British Gas’s customers are on its SVT paying an average £1,044 a year. That is £129 more than British Gas's own cheapest tariff.

Worse still 94 per cent of Utility Warehouse’s customers are on its SVT paying on average £150 more a year than its cheapest deal.

"The fact that around 20 million people remain on these SVTs shows how much more work needs to be done to get people switching to the cheapest tariffs on the market," says Peter Earl, head of energy at Comparethemarket.com.

"With £960m extra expected to be spent on energy bills this Christmas, this league table is a timely reminder of how much people are over-spending on their energy."

What is being done about it?

Ofgem intends to regularly update its league table in an attempt to shame the companies into doing more to move customers onto the best deal. It also hopes consumers will consult the table to see if they are on a good deal.

"This is important data that every household should see. We need to highlight the fact that two thirds of households continue to pay far too much for their gas and electric, simply because they are on their provider’s standard tariff," says Ben Wilson, energy expert at Gocompare.com.

"Standard tariffs play an important role in the domestic energy market, but they shouldn't be the default dumping ground for 20 million households. The message is simple ��� check your bill. If it says 'standard tariff', you need to switch and stop wasting money.”

Is that enough?

Simply producing a snapshot that consumers are unlikely to see doesn’t go far enough, according to some experts. Alex Neill of consumer group Which? for one doesn't think the information will have much effect on consumers.

"Instead, we need to see much more action by energy suppliers this winter to genuinely engage with their customers on poor value deals," he told the Telegraph.

Meanwhile, Ed Kamm, managing director of First Utility, which had the lowest proportion of customers on SVT, wants data released on how long people have been on SVTs.

"We suspect this may be years or even decades in the case of the Big Six," he said in the Telegraph.

Energy prices are being frozen - but you should still shop around

9 December

In the past few weeks half of the Big Six energy firms have announced a prize freeze. But, what initially sounds like great news could mean you are still getting a poor deal. Here’s what you need to know.

Who’s frozen their prices?

E.On, British Gas and SSE have all pledged to freeze prices on their standard tariffs for the winter. British Gas has said it won’t increase it’s standard prices until at least March 2017, while the other two are holding their standard tariffs at their current levels until April 2017.

Great. Does that mean I’m on the best deal?

Absolutely not. Customers on standard tariffs are already “massively overpaying,” Martin Lewis, the founder of MoneySavingExpert.com told The Sun.

“If you are on British Gas’ standard tariff, like all big six standard tariffs, you are already massively overpaying. For someone on typical use you’re paying £1,040 a year,” says Lewis. “If you’re willing to change company, the savings are getting on to £180 a year at typical usage, and much more for many customers who have bigger bills.”

This is a good time to switch providers as the announcement of a prize freeze by the big six companies is normally just a nice way of saying, ‘we’ll be putting prices up in the spring’. Especially, as rising wholesale prices and a weak pound mean energy firms are facing bigger costs. Switch and fix now and you can delay paying those increased prices.

Should I move to a small challenger supplier?

You may want to think twice about moving to a small supplier. Last week GB Energy Supply went bust and more small suppliers are expected to follow suit.

“We are facing a perfect storm. Many small suppliers have only recently come into the market and have only ever experienced relatively low wholesale prices,” says Mark Todd, from energyhelpline.com in The Times.

“However, since March this year, the price of wholesale electricity is up by about 50 per cent and wholesale gas by about 40 per cent. I don’t think we will have seen the last supplier go bust this winter.”

If your energy supplier goes bust you won’t be cut off, Ofgem has promised to find everyone another supplier within 14 days. But, you could be moved onto an expensive standard rate and there is a chance you could lose money if you have built up a large credit balance and don’t provide a prompt meter reading to show what you are owed.

Ofgem recently brought in a new rule that means credit balances are secure – you’ll be part covered by the company that takes over your account, and part by a new levy on all the energy firms to create a safety net fund. But, it’s not clear how long it would take to get your money back. GB Energy customers are believed to be owed around £25m.

Building up a large credit balance happens when you pay be direct debit and overpay each month. It is best avoided as that money rarely earns a decent interest rate. If you have built up a credit balance contact your supplier and ask for a refund.

How can I get the best deal?

Finding the best energy deal is a quick, painless process. Just grab a recent bill and head to a comparison website such as uSwitch.com or ComparetheMarket.com. Tap in your details and it will show you the best deals.

These days the top of the tables are dominated by small energy firms, but after GB Energy’s collapse you need to do your homework before signing up to a small supplier. This winter you might be better off sticking with the best deals offered by the Big Six, or a small company that is well-established, such as Ovo.

British Gas vows to move customers off standard rate

1 December

British Gas has pledged to shift customers from its standard tariff following pressure from the government over energy prices.

It also revealed in a series of newspaper advertisements today that it is freezing its standard rate, with a spokeswoman saying until at least the end of March, reports The Guardian.

This is the second price promise from a "big six" energy supplier in as many weeks. Rival provider SSE announced it will hold its standard tariff at current rates until April 2017.

However, campaigners argue holding prices on the more expensive pricing options does nothing to solve the real issue: that millions of customers, through a mixture of inertia and confusion, are not shopping around for a better deal.

Gillian Guy, the chief executive of Citizens Advice, said standard "bills are as much as £380 more than for those on cheaper fixed deals".

Six million British Gas customers are on its standard tariff, which, at £1,044 using direct debit, is the lowest of the big six. It is only £40 more than the company's own best fixed rate, but the BBC says it is £182 above the best price on the market.

Energy suppliers are in this respect accused of profiteering and exploiting vulnerable customers and were summoned to a meeting with Business Secretary Greg Clark last month.

In addition to confirming the price freeze, British Gas boss Mark Hodges made a "commitment that all British Gas customers will always get access to our best deals", says the Guardian.

"He promised an annual health check for customers on the standard rate to ensure they are on the right tariff."

That might prove valuable next year, when energy costs are expected to start rising as a result of increasing oil prices and the weaker pound bumping up wholesale rates.

Martin Lewis, the founder of MoneySavingExpert, said: "Come the end of winter, expect to see hikes of up to ten per cent by many of the big six companies."

The Sun accuses energy firms of making seven times more profit than they claim

14 November

"Greedy 'big six' energy firms are making profits seven times bigger than they claim," according to The Sun, which cites a "secret report" compiled for the industry's trade body, Energy UK.

"The report shows annual supplier costs – buying gas, running call centres and power lines – amount to £844 to provide fuel for average household use in 2016," the paper says.

Taking these costs from the average "standard variable" energy tariff of £1,172 a year gives a profit of £272 after VAT is removed, representing a profit margin of 24 per cent.

According to figures compiled by the regulator Ofgem, 66 per cent of homes are on their provider's standard tariff, rather than a cheaper fixed-rate deal.

But the industry has long said it makes average margins of less than four per cent on domestic energy use, a figure it has used repeatedly to dispel claims of profiteering whenever customer bills are increased.

"Fatcat firms whinged to investigators at the Competition and Markets Authority that they made profits of just 3.3 per cent, around £37" on a standard bill, says the Sun.

The paper also complained that Energy UK only presented a section of the report, produced by PwC, on its website, showing a breakdown of costs "but making no mention of profits".

Business Secretary Greg Clark has asked Energy UK to attend a meeting to discuss the findings. He said: "This report appears to confirm my concern that the big energy firms are punishing their customers' loyalty rather than respecting it."

But Energy UK has hit back at the claims, which it says are "a complete misrepresentation of the facts".

It says: "The report used the publicly available consolidated segmental accounts of major energy suppliers which are provided to the regulator, Ofgem. These accounts show average profits of 4 per cent."

Lawrence Slade, chief executive of Energy UK, told the BBC: "You can't extrapolate in the way the Sun has. It's just not maths."

Ofgem is seeking to reform the market in order to encourage customers to shop around. It says consumers could save as much as £300 a year if they switched tariff or provider.