As winter approaches, and the heating is about to come on, many of us are worried about the cost of our energy bills. That's because gas prices have barely changed since they shot up 40% last year. That's despite huge falls on the wholesale energy markets - the price the companies pay. So who can make the suppliers charge a fair price for our gas and electricity?
Watchdog decided to find out, so we gathered one customer from each of the big six energy companies - npower, British Gas, Scottish Power, EDF Energy, Scottish and Southern and E.On - and took them on a little tour.
The "Who's got the power?" Tour
This was no ordinary tour. Each of our six energy customers was looking for answers as to why the prices haven't yet come down significantly. Now that the wholesale cost of energy is as low as it was two years ago, they can't understand why the average annual dual fuel bill in August 2009 was £300 more than it was in August 2007. Instead of our bills coming down, the suppliers are even hinting that they might put them up. So, who's got the power to make them listen?
We set out in our 'Who's got the power?' tour bus to find out. On our way we got to find out a little about what our energy customers thought:
Simon Bagley is with EDF Energy. He told Watchdog that companies "...need to substantiate how they can charge so much for their prices to us when the wholesale cost to them has dropped".
Derek Scotland has been with Scottish and Southern for 24 years and had this to say: "Basically in the last sort of year or so, my energy prices [have] doubled. It's come down slightly since then but it's still way over what it should have been."
Sentiments shared by David Edwin, a Scottish Power customer: "You had to accept prices going up when there was this big wholesale increase. But now they haven't played the game."
Promises, promises
David makes a good point. Our bills went up because the wholesale prices did. Everyone gets that bit. And a year ago on Watchdog, the energy companies told us that when those wholesale costs dropped, our bills would too. In fact, in March 2009 Watchdog was given an assurance by Dr Garry Felgate of the Energy Retail Association (ERA) that, "When the wholesale prices come down, the competitive market will get lower gas prices".
That isn't quite what has happened though has it? Despite our bills rising by 40%, when the wholesale costs finally did come down, in Spring, they only fell by around 10%. But the energy companies expected us to be grateful. Dr Felgate also told us in March 2009, "everybody has gotten lower prices from April, and that's a fact."
British Gas even boasted about their price reductions in a TV advertisement, declaring;
"To make your world a better place we've dropped our electricity prices. Giving you the cheapest standard electricity, on average, in Britain. Look after your world with British Gas."
The customers on our tour bus think the suppliers are only looking after their own world - a view that was enforced when British Gas announced a sharp increase in their half yearly residential profits this summer.
Watchdog Invitations
To get some answers, we invited each of the "big 6" energy companies to send someone along to join us on our tour. If they could get some face time with our customers, perhaps they could properly explain the current situation. Every single one of them said no. It wasn't a shock to our customers as they declared "surprise, surprise".
David Wise is with British Gas and told us, "Obviously they're scared of actually facing questions, which perhaps they can't answer."
During the tour, our group passed by The Houses of Parliament. For months, the government has been stating the same as our customers - they'd like to see energy bills come down.
Lord Hunt of Kings Heath (The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs) had this to say in February, when asked by Lord Tomlinson about rises in energy bills:
"The government monitors energy prices and is well aware of the significant rises in energy prices in the UK over the past year. The government expects reductions in those prices following reductions in wholesale prices."
So what are they doing about it? Does the Government have the power to make that happen? Well we couldn't find out, since no minister would agree to see us on four separate dates offered to them by Watchdog.
Instead, they sent a statement, once again saying that if wholesale costs continue downward, they'd expect prices to fall. They said the energy regulator Ofgem is there, to make sure consumers are protected.
If that's the case, we thought, what better place to stop next then Ofgem's head office to try and get some answers. Ofgem is the 'Office of the Gas and Electricity Markets', which is a non-ministerial government department, run by an authority consisting of executive and non-executive members. They are funded via an annual license fee, paid by the energy companies they regulate. But tax paper money contributes to running costs too. Here is what they say about themselves:
"Protecting consumers is our first priority. We do this by promoting competition, wherever appropriate, and regulating the monopoly companies which run the gas and electricity networks."
For months the energy companies hid behind an Ofgem report that said we weren't getting a raw deal. Now, however, even the regulator has said there's scope for prices to come down.
So what are they going to do about it? Yet again nobody would agree to meet us. Ofgem said it's up to the retailers to speak to us and tell us why they're not bringing their prices down.
Derek Scotland was furious at this: "They should be able to do something about it. That's what these people are here for. Surely, they're supposed to look after our interests, and not the interests of the power companies."
Gaynor Aaltonen is an E-on customer who joined us on our tour. She believes "They [Ofgem] are our servants, in a way, our taxes and our money is going towards them, why aren't they here, to give us some answers?"
The Power of Ofgem
In fact, Ofgem has no power whatsoever to tell the suppliers to reduce their prices. It gave up that right seven years ago, because it thought competition was keeping prices fair. The only time they can act with regards to pricing is when they have evidence that a cartel is in place. An investigation by Ofgem in 2008 (published in October 08) found no evidence of this occurring, so nothing has been done.
So who can help? The regulator can't. The government hasn't. So it looks like it's only the energy companies themselves who've got the power to bring our bills down. And so far, for whatever reason - they are not budging.
The energy companies say wholesale prices don't tell the whole story, because they've bought most of their energy many months in advance, usually at higher prices. They also say increased costs, for things like distribution and government implemented environmental fees, eat into their margins. They also say that when wholesale prices went up by more than 250% they only passed on around 40% to the consumer, shielding them from the worst of it. So when prices went up, they took the brunt of the costs.
They always seem able to come up with reasons why they are in the right. So it's a shame they didn't want to put them directly to their customers, face-to-face.
Price Analysis
John Hall is a highly respected specialist in the energy markets across Europe and he had no problems giving us his opinion.
He showed our group a graph based on figures from Ofgem (see below). It makes clear that if our energy bills don't go down, as wholesale costs continue to fall, the amount of money the energy companies get is set to rise further.
John explained to us the graph showed wholesale prices were expected to fall into the future, and as a consequence, we'd expect to see the costs to the consumer fall as well. Since, in the graph, the price we pay isn't shown to be coming down it means that the margin enjoyed by the suppliers, according to Ofgem, is likely to increase further as we move through the end of this year, towards next year. Where does that leave you, the consumer?
John told us; "Wholesale Energy costs, I think, really are going to go up in the future, but I think in the short term we need to have greater transparency to understand how those costs are made up. But I also believe costs could have come down two or three months ago and they haven't."
Needless to say, this makes our energy customers angrier as it confirms everything they have been saying. Scottish and Southern customer, Derek Scotland, told us: "I'm really annoyed about it, because you see the huge profits that these companies are making, and you wander how they can't pass these price reductions onto the customers."
Pensioner David Wise, who pays Scottish Power for his energy, had this to say: "If I were to rely just on my pension, it would be very hard going, and I know people are finding it very hard."
Gaynor Aaltonen was outraged - "What I think is that the British consumer is just being taken for a ride, and my real beef, is that the Government's just sitting back and letting it happen."
British Gas statement
"As you will appreciate, our intentions on pricing are commercially sensitive. We remain committed to doing what we can when we can for our customers, and offering competitive and transparent prices. I would point out that we were the first of the "big 6" to cut prices this year and also had the biggest cuts - 10% on both gas and electricity. "
EDF Energy statement
"EDF Energy's prices are continually under review and we are committed to providing our customers with practical and effective ways to use their energy more efficiently and save money. We also continue to lead the industry with our special help for our most vulnerable customers, notably though our Energy Assist tariff and the EDF Energy Trust Fund.
"Our prices have remained genuinely competitive during this period of unpredictable and volatile wholesale costs. For example, EDF Energy is currently the cheapest supplier among the big 6 both for a typical dual fuel standard credit customer and dual fuel prepayment customer based on a national average across all regions*.
"In order to offer our customers relatively stable and competitive prices, we buy our wholesale energy supplies many months in advance. There is always a time lag between when prices change on the wholesale market and when these feed through to domestic bills. This strategy has allowed us to smooth retail prices on behalf of customers and mitigate the effect of higher wholesale prices on our customers. In addition, Ofgem's own projections show that wholesale energy costs look set to increase during the second half of 2010.
"The supply side of our business operates in a very competitive market with companies operating with very low (and sometimes negative) margins - a situation made more challenging by the current economic climate. It is also important to remember that the wholesale price of energy only contributes to part of the cost of a domestic bill and there are other key cost components. The increasing costs of Government initiatives to address climate change, transmission and distribution charges and metering costs are all key factors in customers' energy prices.
"The profits made by EDF Energy in the UK contribute to our investment in the UK's energy infrastructure, both in generation and distribution. We are currently investing £400 million in our distribution network per year and around £500-600 million in our new CCGT gas plant at West Burton. This level of investment will increase significantly in the next few years as we continue to develop energy infrastructure such as renewables and through our plans for new nuclear.
*Typical annual consumption is defined as 3,300 kWh of electricity and 20,500 kWh of gas."
E.ON statement
"We continue to monitor wholesale energy prices closely and have no current plans to change our fuel prices."
npower statement
"We're continuing to review our prices in light of current and future wholesale energy and other costs.
"If we had aligned our prices with wholesale energy costs in 2008, we would have charged our customers an additional £250 million (£150 per dual fuel customer). Between January 2007 and September 2008, wholesale gas costs increased by 200% while npower's own gas prices increased by only 27%. "
Scottish and Southern Energy statement
"It is genuinely disappointing when one of our customers feels they cannot get their questions answered directly from us as their energy supplier. I would highly recommend you visit our website where we have posted clear information on our position on pricing. Feel free to log on to his website and have a look at these. "
Scottish Power statement
"This year we lowered gas by an average of 7.5% and electricity by 3 % - both decreases became effective on 31 March. Our Economy 7 rates are the cheapest in the market for prepayment, direct debit and prompt Cash Quarterly."
Statement from DECC Minister David Kidney
"If wholesale costs continue to fall, we expect to see further retail price cuts in the coming months, given that suppliers' margins are relatively high compared to historic levels, especially on gas. Suppliers must pass on any reduction in wholesale prices to their retail customers wherever possible, which is why we have asked the regulator to report regularly on wholesale and retail prices.
"Suppliers need to recognise the pressures on consumers in these difficult times, and consider when current trends will allow further reductions in retail prices."
Let us know what you think. Should energy prices come down? Will you be able to cope with your winter bills this year?
Why haven't energy prices come down?
Watchdog decided to find out, so we gathered one customer from each of the big six energy companies - npower, British Gas, Scottish Power, EDF Energy, Scottish and Southern and E.On - and took them on a little tour.
The "Who's got the power?" Tour
This was no ordinary tour. Each of our six energy customers was looking for answers as to why the prices haven't yet come down significantly. Now that the wholesale cost of energy is as low as it was two years ago, they can't understand why the average annual dual fuel bill in August 2009 was £300 more than it was in August 2007. Instead of our bills coming down, the suppliers are even hinting that they might put them up. So, who's got the power to make them listen?
Simon Bagley is with EDF Energy. He told Watchdog that companies "...need to substantiate how they can charge so much for their prices to us when the wholesale cost to them has dropped".
Derek Scotland has been with Scottish and Southern for 24 years and had this to say: "Basically in the last sort of year or so, my energy prices [have] doubled. It's come down slightly since then but it's still way over what it should have been."
Sentiments shared by David Edwin, a Scottish Power customer: "You had to accept prices going up when there was this big wholesale increase. But now they haven't played the game."
Promises, promises
David makes a good point. Our bills went up because the wholesale prices did. Everyone gets that bit. And a year ago on Watchdog, the energy companies told us that when those wholesale costs dropped, our bills would too. In fact, in March 2009 Watchdog was given an assurance by Dr Garry Felgate of the Energy Retail Association (ERA) that, "When the wholesale prices come down, the competitive market will get lower gas prices".
That isn't quite what has happened though has it? Despite our bills rising by 40%, when the wholesale costs finally did come down, in Spring, they only fell by around 10%. But the energy companies expected us to be grateful. Dr Felgate also told us in March 2009, "everybody has gotten lower prices from April, and that's a fact."
British Gas even boasted about their price reductions in a TV advertisement, declaring;
"To make your world a better place we've dropped our electricity prices. Giving you the cheapest standard electricity, on average, in Britain. Look after your world with British Gas."
The customers on our tour bus think the suppliers are only looking after their own world - a view that was enforced when British Gas announced a sharp increase in their half yearly residential profits this summer.
Watchdog Invitations
To get some answers, we invited each of the "big 6" energy companies to send someone along to join us on our tour. If they could get some face time with our customers, perhaps they could properly explain the current situation. Every single one of them said no. It wasn't a shock to our customers as they declared "surprise, surprise".
David Wise is with British Gas and told us, "Obviously they're scared of actually facing questions, which perhaps they can't answer."
During the tour, our group passed by The Houses of Parliament. For months, the government has been stating the same as our customers - they'd like to see energy bills come down.
Lord Hunt of Kings Heath (The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs) had this to say in February, when asked by Lord Tomlinson about rises in energy bills:
"The government monitors energy prices and is well aware of the significant rises in energy prices in the UK over the past year. The government expects reductions in those prices following reductions in wholesale prices."
So what are they doing about it? Does the Government have the power to make that happen? Well we couldn't find out, since no minister would agree to see us on four separate dates offered to them by Watchdog.
Instead, they sent a statement, once again saying that if wholesale costs continue downward, they'd expect prices to fall. They said the energy regulator Ofgem is there, to make sure consumers are protected.
If that's the case, we thought, what better place to stop next then Ofgem's head office to try and get some answers. Ofgem is the 'Office of the Gas and Electricity Markets', which is a non-ministerial government department, run by an authority consisting of executive and non-executive members. They are funded via an annual license fee, paid by the energy companies they regulate. But tax paper money contributes to running costs too. Here is what they say about themselves:
"Protecting consumers is our first priority. We do this by promoting competition, wherever appropriate, and regulating the monopoly companies which run the gas and electricity networks."
For months the energy companies hid behind an Ofgem report that said we weren't getting a raw deal. Now, however, even the regulator has said there's scope for prices to come down.
So what are they going to do about it? Yet again nobody would agree to meet us. Ofgem said it's up to the retailers to speak to us and tell us why they're not bringing their prices down.
Derek Scotland was furious at this: "They should be able to do something about it. That's what these people are here for. Surely, they're supposed to look after our interests, and not the interests of the power companies."
Gaynor Aaltonen is an E-on customer who joined us on our tour. She believes "They [Ofgem] are our servants, in a way, our taxes and our money is going towards them, why aren't they here, to give us some answers?"
The Power of Ofgem
In fact, Ofgem has no power whatsoever to tell the suppliers to reduce their prices. It gave up that right seven years ago, because it thought competition was keeping prices fair. The only time they can act with regards to pricing is when they have evidence that a cartel is in place. An investigation by Ofgem in 2008 (published in October 08) found no evidence of this occurring, so nothing has been done.
So who can help? The regulator can't. The government hasn't. So it looks like it's only the energy companies themselves who've got the power to bring our bills down. And so far, for whatever reason - they are not budging.
The energy companies say wholesale prices don't tell the whole story, because they've bought most of their energy many months in advance, usually at higher prices. They also say increased costs, for things like distribution and government implemented environmental fees, eat into their margins. They also say that when wholesale prices went up by more than 250% they only passed on around 40% to the consumer, shielding them from the worst of it. So when prices went up, they took the brunt of the costs.
They always seem able to come up with reasons why they are in the right. So it's a shame they didn't want to put them directly to their customers, face-to-face.
Price Analysis
John Hall is a highly respected specialist in the energy markets across Europe and he had no problems giving us his opinion.
He showed our group a graph based on figures from Ofgem (see below). It makes clear that if our energy bills don't go down, as wholesale costs continue to fall, the amount of money the energy companies get is set to rise further.
John explained to us the graph showed wholesale prices were expected to fall into the future, and as a consequence, we'd expect to see the costs to the consumer fall as well. Since, in the graph, the price we pay isn't shown to be coming down it means that the margin enjoyed by the suppliers, according to Ofgem, is likely to increase further as we move through the end of this year, towards next year. Where does that leave you, the consumer?
John told us; "Wholesale Energy costs, I think, really are going to go up in the future, but I think in the short term we need to have greater transparency to understand how those costs are made up. But I also believe costs could have come down two or three months ago and they haven't."
Needless to say, this makes our energy customers angrier as it confirms everything they have been saying. Scottish and Southern customer, Derek Scotland, told us: "I'm really annoyed about it, because you see the huge profits that these companies are making, and you wander how they can't pass these price reductions onto the customers."
Pensioner David Wise, who pays Scottish Power for his energy, had this to say: "If I were to rely just on my pension, it would be very hard going, and I know people are finding it very hard."
Gaynor Aaltonen was outraged - "What I think is that the British consumer is just being taken for a ride, and my real beef, is that the Government's just sitting back and letting it happen."
British Gas statement
"As you will appreciate, our intentions on pricing are commercially sensitive. We remain committed to doing what we can when we can for our customers, and offering competitive and transparent prices. I would point out that we were the first of the "big 6" to cut prices this year and also had the biggest cuts - 10% on both gas and electricity. "
EDF Energy statement
"EDF Energy's prices are continually under review and we are committed to providing our customers with practical and effective ways to use their energy more efficiently and save money. We also continue to lead the industry with our special help for our most vulnerable customers, notably though our Energy Assist tariff and the EDF Energy Trust Fund.
"Our prices have remained genuinely competitive during this period of unpredictable and volatile wholesale costs. For example, EDF Energy is currently the cheapest supplier among the big 6 both for a typical dual fuel standard credit customer and dual fuel prepayment customer based on a national average across all regions*.
"In order to offer our customers relatively stable and competitive prices, we buy our wholesale energy supplies many months in advance. There is always a time lag between when prices change on the wholesale market and when these feed through to domestic bills. This strategy has allowed us to smooth retail prices on behalf of customers and mitigate the effect of higher wholesale prices on our customers. In addition, Ofgem's own projections show that wholesale energy costs look set to increase during the second half of 2010.
"The supply side of our business operates in a very competitive market with companies operating with very low (and sometimes negative) margins - a situation made more challenging by the current economic climate. It is also important to remember that the wholesale price of energy only contributes to part of the cost of a domestic bill and there are other key cost components. The increasing costs of Government initiatives to address climate change, transmission and distribution charges and metering costs are all key factors in customers' energy prices.
"The profits made by EDF Energy in the UK contribute to our investment in the UK's energy infrastructure, both in generation and distribution. We are currently investing £400 million in our distribution network per year and around £500-600 million in our new CCGT gas plant at West Burton. This level of investment will increase significantly in the next few years as we continue to develop energy infrastructure such as renewables and through our plans for new nuclear.
*Typical annual consumption is defined as 3,300 kWh of electricity and 20,500 kWh of gas."
E.ON statement
"We continue to monitor wholesale energy prices closely and have no current plans to change our fuel prices."
npower statement
"We're continuing to review our prices in light of current and future wholesale energy and other costs.
"If we had aligned our prices with wholesale energy costs in 2008, we would have charged our customers an additional £250 million (£150 per dual fuel customer). Between January 2007 and September 2008, wholesale gas costs increased by 200% while npower's own gas prices increased by only 27%. "
Scottish and Southern Energy statement
"It is genuinely disappointing when one of our customers feels they cannot get their questions answered directly from us as their energy supplier. I would highly recommend you visit our website where we have posted clear information on our position on pricing. Feel free to log on to his website and have a look at these. "
Scottish Power statement
"This year we lowered gas by an average of 7.5% and electricity by 3 % - both decreases became effective on 31 March. Our Economy 7 rates are the cheapest in the market for prepayment, direct debit and prompt Cash Quarterly."
Statement from DECC Minister David Kidney
"If wholesale costs continue to fall, we expect to see further retail price cuts in the coming months, given that suppliers' margins are relatively high compared to historic levels, especially on gas. Suppliers must pass on any reduction in wholesale prices to their retail customers wherever possible, which is why we have asked the regulator to report regularly on wholesale and retail prices.
"Suppliers need to recognise the pressures on consumers in these difficult times, and consider when current trends will allow further reductions in retail prices."
Let us know what you think. Should energy prices come down? Will you be able to cope with your winter bills this year?
Why haven't energy prices come down?