Lack of competition in energy market costs consumers £2.9bn

New Which? research analysing movements in energy prices has revealed bills could have been slashed further and sooner than the recent round of cuts, costing consumers a massive £2.9 billion over the last year.

Using real market data, we analysed the costs to suppliers of buying wholesale energy since 2013 and compared this against what consumers have paid for wholesale costs through energy bills in the same period. We found that the failure of retail prices to align with wholesale costs has cost consumers £2.9bn over the last year, an equivalent of £145 per household on standard energy tariffs.

Our analysis suggests standard variable energy tariffs have not kept in line with wholesale prices over the past two years. In particular:

• We can see no justification for the increases to gas and electricity prices in late 2013, based on wholesale costs, which for gas prices alone is estimated to have cost consumers £421million per year.

• The recent cuts in Big Six standard gas tariffs of up to 5.1% should have been greater, in the region of 8.8% to 10.3%, if they were to align with wholesale energy costs -equivalent to a decrease of between £777 million and £907 million per annum to households on standard gas tariffs.

• Our figures show suppliers could reduce electricity prices by up to 10% - a saving of at least £1.6 billion a year to consumers on electricity standard tariffs.

We have submitted our analysis as fresh evidence to the ongoing Competition and Markets Authority’s investigation into the energy market, and to HM Treasury for its more recently announced inquiry.

Which? executive director, Richard Lloyd said:

“Our analysis places a massive question mark over how suppliers have been setting prices over the last two years. They now need to explain to their customers why bills don’t fall further in response to dropping wholesale prices. Energy bills are consistently the top consumer concern so it’s about time people got a fair deal.

“While the competition inquiry should establish beyond doubt  whether the price people are paying today is right, consumers will now look to politicians of every party to set out how they’ll deliver fair and affordable energy prices in the future.”

The latest statistics from the Which? Consumer Insight Tracker show that energy prices are the top financial worry with around seven in 10 (68%) consumers concerned, and just one in five (20%) trust suppliers to act in their best interests.

Our Fair Energy Prices campaign, which already has nearly 99,000 supporters, calls on the Competition and Markets Authority (CMA), as part of its current investigation into the energy market, to:

•​Investigate the best way for the regulator to establish a ‘price to beat’, so that consumers can trust that the price they pay is fair.

•​Require energy suppliers to use simple, directly comparable pricing, similar to petrol pump displays, so people can more easily compare prices and make the best choice if they switch.

Notes to Editors

1. A full copy of our full report and analysis is available here.

2. In our research we looked at commonly used buying or hedging models, reflecting the range of approaches most likely to have been used by suppliers, to estimate the cost of buying wholesale energy since 2013. We compared these costs against our estimate of what consumers have paid for wholesale costs through energy bills in the same period (we excluded all other costs on energy tariffs such as social and environmental levies, operational costs and profit margins).

3. Consumer Insight Tracker statistics: Populus, on behalf of Which?, interviewed a representative sample of 2,126 UK adults online between 12th and 14th December 2014.  Data were weighted to be demographically representative of all UK adults. Populus is a member of the British Polling Council and abides by its rules.  For more details visit Which? Consumer Insight Tracker.

4. Which? Switch - If you think you might be missing out on the cheapest energy deal you can use Which? Switch to compare energy prices. Which? Switch is an independent service that searches the market to provide a comprehensive, transparent and impartial view of your gas and electricity options, including supplier and tariff ratings to help you decide on service as well as price.




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