Page last updated at 15:25 GMT, Wednesday, 10 December 2008

Firms urged to cut energy bills

Prices charged by all the major suppliers have risen in 2008

The major energy companies are under renewed pressure from the government to drop prices for domestic customers.

Energy Secretary Ed Miliband urged the companies to pass on savings from the falling cost of oil to consumers as soon as possible.

His comments echo those of Chancellor Alistair Darling and the head of regulator Ofgem in recent weeks.

Some of the "big six" suppliers have already suggested prices could fall early in the new year.

Householders faced two price increases for gas and electricity bills during 2008, with the average dual fuel bill going up by more than 300 over the year.


The cost of wholesale gas is linked to the price of oil, which has slumped in recent weeks, as well as the long-term security of gas and electricity supplies.

In a speech at London's Imperial College, Mr Miliband said: "We have recently seen big falls in wholesale gas and electricity prices, but I understand that because energy companies tend to buy in advance they won't be passed on immediately.

5 July - EDF Energy
Gas up 22%, electricity up 17%
30 July - British Gas
Gas up 35%, electricity up 9%
21 Aug - Eon
Gas up 26%, electricity up 16%
21 Aug - Scottish & Southern
Gas up 29.2%, electricity up 19.2%
29 Aug - Scottish Power
Gas up 34%, electricity up 9%
29 Aug - Npower
Gas up 26%, electricity up 14%

"But they must be passed on as soon as possible."

Gordon Brown also repeated the view during Prime Minister's Questions on Wednesday.

Data from energy consultants Inenco show that 12-month forward wholesale gas prices rose sharply in the first half of 2008, peaking at 100p a therm in July.

But the price has since fallen steeply, and was down to 56p a therm on 5 December.

Energy suppliers have long-term contracts that fix the price of gas and electricity they sell to customers.

Ian Parrett, of Inenco, said these would only filter through to customers from March, but estimated that when the changes come there could be a 15% reduction in electricity prices and a fall in gas prices of between 20% and 25%.

"Price reductions of this scale would be very welcome, but it would be better if the supply companies could find a way of cutting prices when people need the most energy," he said.

In his pre-Budget report, Chancellor Alistair Darling acknowledged "widespread concern" that these wholesale price changes were not being reflected quickly enough in falling household bills.

He announced that Ofgem would produce a report every three months on price changes.

Mr Darling and Mr Miliband have said that the government would step in if there was evidence of "unfair gaps" in pricing between different payment methods, such as pre-payment meters and direct debit customers.

'No excuse'

In his speech, Mr Miliband said that there was also "no excuse" for overcharging those not on a gas grid or living in an area where a company once had monopoly control.

Gas hob
Wholesale gas costs are linked to the price of oil

British Gas announced in November that it was narrowing the price between pre-payment meter bills and other forms of payment - leading to a 22 average cut in the annual bill of a dual fuel pre-payment meter customer.

And the UK's second-biggest energy company, Scottish and Southern Energy, said it was "optimistic" that domestic prices could be cut early in 2009 if wholesale gas and electricity prices continued their downward trend.

E.On also said it hoped that energy bills would come down next year.

Last week it said it would cut the annual bills of some residential electricity customers who are not on mains gas. Customers from the East Midlands, East of England and North West, who buy just electricity from E.On, will see their annual bills reduced by 14.

Npower also said it was making similar changes. Its pre-payment meter customers now paid the same as those on with standard quarterly cash or cheque bills.

Ofgem chief executive Alistair Buchanan told MPs last month that the regulator was putting as much pressure as it could on all the major suppliers to make announcements soon on bills.

The Environment, Food and Rural Affairs committee of MPs was meeting on Wednesday to quiz representatives from the industry on fuel poverty and energy efficiency.

Shadow Secretary of State for Business, Enterprise and Regulatory Reform, Greg Clark, said: "He [Ed Miliband] is threatening action against the energy companies in the full knowledge that energy prices are set to drop anyway as a result of the economic downturn.

"But before that happens, millions of households will endure a winter of fuel poverty thanks to the failure of this government to act when it would have made a difference."

He said the Conservatives would encourage energy companies to put clearer information on bills, require every company to offer social tariffs to vulnerable households, and reform Post Office Card Accounts to enable people to pay their utility bills through direct debit style payments.

Wholesale gas graph

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