22nd November, 2010 Energy bills are to increase dramatically this winter, despite utilities providers benefiting from reduced wholesale costs
Consumer groups are in revolt over steep price hikes that will see households face near-record gas and electricity bills this winter, despite the fact that wholesale prices are only half the level of 2008.
Last week, British Gas surprised the energy sector when it announced it will increase its gas and electricity prices by an average of 7% – although many customers will see bills rise by as much as 10%. Earlier, Scottish & Southern Energy (SSE), the company traditionally last to raise prices, had already announced an unwelcome 9.4% addition to bills.
If past experience is anything to go by, consumers can expect further increases from E.ON, Scottish Power, and npower. Only one of the major power firms, EDF, has ruled out increasing prices this winter. British Gas says it has been forced to hike prices because "the wholesale cost of gas for 2011 is 25% higher than for 2010".
Yet wholesale gas prices collapsed in 2009 and have not risen to anywhere near their previous levels. Profits at the utility companies have, in the meantime, surged. Centrica, which operates British Gas, told City analysts this week that its profits were likely to be above expectations, hitting £2.2bn. Shareholders have enjoyed an 18% gain in the value of their holdings this year alone, with dividends on top.
Consumer Focus seized on the figures as proof customers are being treated unfairly. It pointed out that in July, Nick Luff, group finance director, said of British Gas's high half-year profit figures: "Commodity costs were lower, despite the higher volumes and that reflected the low wholesale prices and led to the unusually high margins we had in the first half … The UK downstream was the main driver [for high profits], helped by the cold weather and the low wholesale price."
Audrey Gallacher, head of energy at Consumer Focus, said: "Customers will be baffled as to why they are being told to pay more when British Gas is on track for huge profits. British Gas admits that high margins due to low wholesale costs have given a major boost to its balance sheet. So why, yet again, have customers seen only tiny price cuts when wholesale costs have been so low for so long, yet suppliers hike prices as soon as wholesale costs start to edge up."
Gallacher says that research by Consumer Focus shows customers have little trust in what energy providers tell them. "Unless there is a major injection of transparency, it will remain impossible to tell whether bills are fair and the market is working properly.'
A spokeswoman for British Gas said that the price increases were justified given that wholesale costs have risen by 25% in recent months.
"They are just part of the picture: in every other part of our business costs have been rising. Our transmission and distribution costs have risen and have to be reflected in the prices we charge. Our profits are always higher in the first half of the year, and this will not be carried through to the second six months."
Meanwhile, Consumer Focus has called on the government to embrace new EU legislation that would give the regulator, Ofgem, the ability to force the big six energy providers to disclose the price they pay for energy. It also says the power companies should be required to produce accounts that credibly break down their profits and margin, rather than hiding the true costs through complex accounting procedures.
Earlier this month SSE said it had lost £60m on its gas supply business. However, when TheEnergyShop.com analysed the figures it found they included an estimated cost of acquiring gas based on "an assumed 24 hedging strategy" rather than the actual cost of gas purchased. At the same time, SSE reported a profit of £127m for "portfolio optimisation", which it says represents profits that "are not directly attributable to generation or supply".
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