Suppliers should explain wholesale price impact on energy bills
Press release
Publication date
Industry sector
Supply and Retail Market
We’re today calling on the Big Six energy suppliers to explain to customers what impact falling wholesale costs will have on their energy prices.
In a letter to the large suppliers, we’ve outlined that failure to engage with consumers on this issue further risks undermining public confidence in the energy market if wholesale costs continue to fall.
Falling costs
In recent months, both wholesale gas and electricity prices have been falling significantly. In early June 2014, gas prices for next day delivery reached their lowest level since September 2010 and are now around 38 per cent below this time last year. The trend has been similar in electricity, with prices reaching their lowest level since April 2010 at the beginning of June. They are currently around 23 per cent lower than this time last year. While there are upward pressures on energy costs resulting from government schemes to support environmental objectives as well as energy network renewal, the costs of wholesale power and gas cost dwarf these and make up just under half the total household bill.
Forward prices for gas and electricity have also fallen. Compared with last winter, gas and electricity prices for the coming winter are around 16 per cent and nine per cent lower respectively than last year. This trend has been driven by the mild temperatures across GB and Europe last winter, leaving gas storage at record levels. In a competitive market the threat of losing market share would encourage suppliers to reduce their customers’ bills whenever there are sustained reductions in costs.
Suppliers are yet to reduce their prices for existing customers to reflect the wholesale cost changes.
Competition
We are proposing to refer the retail market to the Competition and Markets Authority (CMA) after our report assessing competition in the energy market, produced with the Office of Fair Trading and CMA, confirmed that competition is not working as well as it could.
Find out more in our press release