The ‘big six’ energy firms have been accused of overcharging consumers by Ofgem, the government regulator for the gas and electrical markets. In an interview with Radio 4’s Today programme, Ofgem’s chief executive Dermot Nolan said that domestic prices should be cheaper for the vast majority of people. This is despite 3.8 million people switching their energy supplier last year in what is thought to be an extremely competitive market.
Mr Nolan was reacting to growing anger about energy giants not passing on large cuts in wholesale prices to consumers.
According to market information provider ICIS, wholesale prices have fallen to a five-year low, at £36.76 per megawatt hour. Yet, according to Ofgem, many customers who are on variable contracts are not seeing a corresponding fall in their bills.
When asked if energy firms are ripping customers off, Mr Nolan responded: “I think they are overcharging in many cases. I think what they are consciously doing is charging as high as they think people will get, which is an endemic feature of any market, but the main protection for consumers is a competitive market.”
Mr Nolan said people on variable deals - rather than fixed-rate tariffs where there is price competition – were failing to see much benefit from cheaper global wholesale energy.
"We really should be seeing bigger retail cuts than we have seen so far," he told Radio 4's Today programme.
The Competition and Markets Authority (CMA) is now investigating and is due to set out its final recommendation at the end of January. It’s the continuing lack of any apparent real competition in the domestic energy market that led the watchdog to refer the market to the Competition and Markets Authority last year.
Anger at the lack of action from energy companies has become widespread. Shadow Energy Secretary Lisa Nandy said: "The big energy companies are benefiting from falling gas prices and still too many families are paying massive energy bills. There could be no clearer evidence of why the energy market is broken and needs to be overhauled."
Energy industry comments
Defending the energy giants, Lawrence Slade, chief executive of industry body Energy UK, said: "Energy companies are bringing down their prices with cheaper tariffs launched almost every week. Wholesale prices make up less than half of the average bill and the majority of the rest falls outside suppliers' control so there will always be a difference between wholesale price falls and what customers actually pay.
If you are struggling to pay your energy bills, the ‘Energy Schemes' section of our website has information on the various schemes and grants that may be available to help towards the cost of energy.
Source: Energy UK press release
BBC News: Energy firms overcharging customers says Ofgem