Ofgem writes to energy firms over falling wholesale prices

Ofgem has called on the Big Six energy suppliers to explain to their customers what impact falling wholesale prices will have on bills, saying the cost of both gas and electricity has been dropping "significantly" in recent months.

Ofgem and Big Six energy firms dispute prices

by - Business Editor

The energy regulator Ofgem has written an open letter to the Big Six energy companies asking them to explain to customers why their bills have not fallen despite a drop in wholesale energy prices.

But the firms are saying it is more complicated than it would seem because much more than wholesale pricing goes into making up the cost of our bills.

The government said the companies would do well to listen to the letter or face action - the toughest of which would be a full competition inquiry.

Read: Ofgem writes to energy firms over falling wholesale prices

Energy firms and regulator disagree over pricing

by - Business Editor

The energy regulator Ofgem has called on the Big Six to explain to customers why - with wholesale prices falling - they have not cut bills.

The energy firms are saying that it is much more complicated than the regulator is making out.

Ofgem quotes the wholesale price, but much more than just that goes into making up the cost of our bills. The prices Ofgem is quoting, the firms say, are overnight prices.

Energy firms buy three years into the future. Credit: Frank May/DPA/Press Association Images

But many of these energy companies are buying up to three years into the future where the price falls have been much more modest.

When it comes to passing on savings the companies say 'we're doing that' adding that they have to make money, and that their profits are 'pretty modest'.

The issue here is about how politicians, the general public, and now the regulator seem to have lost trust in energy companies.

A full competition inquiry now looks inevitable.

Read: Ofgem writes to energy firms over falling wholesale prices

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British Gas: 'When our costs fall, our prices do too'

British Gas as responded to comments about wholesale energy saying that "when our costs fall, our prices do too".

The wholesale cost of energy is now less than half the bill which partly explains why the wholesale price can fall, but overall prices don’t.

Most suppliers buy their energy in advance, up to three years in some cases, to ensure security of supply and smooth out price volatility.

When our costs fall, our prices do too.

In December, the government’s restructure of the energy efficiency scheme ECO, resulted in British Gas being the first supplier to introduce a £42 price cut for all our customers, including those on fixed deals - the only supplier to do so.

– British Gas

Ofgem: Energy companies 'need to rebuild trust'

Energy companies should rebuild consumer trust, Ofgem said. Credit: John Giles/PA Wire/Press Association Images

The Big Six energy companies need to rebuild consumer trust by explaining their pricing policies to customers, the energy regulator Ofgem has said.

Dermot Nolan, the regulator's chief executive officer said: "Given the need to re-build consumer trust in the market it is important that suppliers explain to their customers these changes in the wholesale market and what impact they will have on their pricing policies."

Read: Ofgem writes to energy firms over falling wholesale prices

Ofgem: Big Six energy firms 'should be investigated'

Energy regulator Ofgem has proposed that the Big Six energy firms should be investigated by the Competition and Markets Authority.

The Big Six energy firms. Credit: PA/PA Wire/Press Association Images

In an open letter to Britain's main energy suppliers, the regulator's chief executive officer Dermot Nolan said they were concerned that companies were "not passing on savings to customers".

He said: "A concern that savings were not being passed on to customers was one of the reasons why we have proposed a referral of the energy market to the Competition and Markets Authority for investigation."

Read: Ofgem writes to energy firms over falling wholesale prices

DECC: Energy suppliers 'must justify prices'

Energy companies should justify their prices to customers, a government spokesman has said.

Energy suppliers are responsible for their prices and must justify those prices to their customers.

The best way to keep prices down is to introduce more competition, and our reforms have led to the number of suppliers trebling since 2010.

We also support Ofgem's proposal for a full investigation into competition in the energy market."

– Department of Energy spokesman

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Ofgem: Savings should be passed to customers sooner

The energy watchdog Ofgem has said that the Big Six should pass on savings from wholesale prices to customers as soon as it is possible.

The Big Six should pass on savings sooner, according to Ofgem. Credit: PA

In an open letter, the regulator's chief executive officer, Dermot Nolan, said: "In a competitive market, I would expect the threat of losing market share to encourage suppliers to pass on sustained reductions in wholesale costs as savings to consumers as soon as possible.

"If that is not happening, it could be seen as further evidence that competition is not working for consumers as well as it should be."

Read: Ofgem writes to Big Six over falling wholesale prices

Ofgem: Energy firms should explain price drop

Energy firms should explain price drop, Ofgem has said. Credit: Andrew Milligan/PA Wire/Press Association Images

Energy regulator Ofgem has called on the Big Six energy suppliers to explain to their customers what impact falling wholesale prices will have on bills, saying the cost of both gas and electricity has been dropping "significantly" in recent months.