Page last updated at 09:50 GMT, Thursday, 25 June 2009 10:50 UK

Row on energy bill 'overcharging'

Both sides put forward their arguments

A row has broken out over claims that customers are being overcharged by an average of £74 on annual energy bills.

The independent consumer watchdog, Consumer Focus, says energy suppliers have not been fully passing on declines in wholesale costs.

Crude oil has fallen from $147 a barrel in July last year to about $70.

But the Energy Retail Association says that other costs have gone up and there is no evidence of suppliers increasing prices faster than they reduce them.

'Simply wrong'

Consumer Focus said its research was based on methodology and data from the regulator Ofgem, and showed that energy suppliers were overcharging customers by a total of £1.66bn this year.

Companies are pocketing £1.6bn extra, while millions of households struggle to make ends meet
Philip Cullum, Consumer Focus

But Ofgem said Consumer Focus had used its data incorrectly.

Ofgem has been conducting quarterly reviews of the link between wholesale prices and domestic bills.

After two of these surveys, it concluded that there was no evidence that suppliers passed on increasing wholesale costs to customers, but then failed to drop prices when costs fell.

Ofgem said it was "entirely confident" in its analysis of wholesale and retail energy prices.

"We cannot accept Consumer Focus' claim to have used our methodology for calculating wholesale costs," the regulator said.

"They have borrowed some of it but they appear to have made assumptions that are simply wrong."

Fuel fears

All of the six main energy suppliers have cut their prices since the beginning of the year, but Consumer Focus claims that current gas bills should be at least 7.4% cheaper (£60.10 annually) and electricity bills at least 3.1% cheaper (£13.80 annually).

"Consumers have feared for months that the big six suppliers might not have passed on the full cuts in wholesale energy prices, but the companies claimed to have acted fairly," said Philip Cullum from Consumer Focus.

Gas flame
Prices have come down this year but Consumer Focus says not by enough

"Our new research for the first time shows the reality. The companies are pocketing £1.6bn extra, while millions of households struggle to make ends meet."

British Gas cut its gas prices by 10% in February and its electricity prices by 10% in May.

E.On, EDF Energy, Scottish and Southern, Scottish Power and Npower all lowered their electricity prices by the end of March.

But energy companies argue that bills are not based on wholesale costs alone.

"The amount of gas and electricity a customer uses can form as little as half their annual bill," said Garry Felgate from the Energy Retail Association

"The remainder includes other costs, such as transporting gas and power around the country and meeting the government's carbon emissions reductions targets. All these costs have risen sharply in recent years. Consumer Focus has ignored these facts during its research."

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