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Oil prices are plunging and the wholesale price of gas and electricity in the UK is trending downwards – so why are our fuel bills still going up?
The answer from the big energy companies – whose unpopularity has now only been eclipsed by the banks – is that it takes time before their lower costs feed into lower bills for consumers.
Suppliers like British Gas or E.ON UK either have to buy in electricity and gas from the wholesale markets to supply their customers, or they get it from their own power plants and from long-term gas supply contracts.
These utilities treat each division separately – so for example, E.ON UK has to buy power from its own generation arm. When it costs more for its plants to generate power, these get passed onto its retail arm, which in turn raises the price its customers pay. The opposite should happen when costs fall. Companies say it can take six months for these changes to feed through to customers. This means retail prices should start coming down soon.
Fair enough, in theory. But there is so little financial information or transparency about suppliers' activities that it is hard to track their real costs. The publicly tradeable wholesale gas and electricity market is no longer an accurate measure of the 'real' cost of these commodities for energy companies as so little is traded in this way: most suppliers get their gas and electricity from within their own group. No-one knows what their real costs are because companies do not have to release the information. EDF's impending takeover of British Energy – a standalone company providing about a fifth of the UK's power – is another nail in the coffin of wholesale energy markets in the UK. Critics can be forgiven for not being inclined to take the companies at their word when they insist that bills will come down eventually.
Gordon Brown jumped onto the anti-energy company bandwagon this month when he called on suppliers to cut bills as their costs come down. It doesn't help that many suppliers are only now notifying their customers by letter of the price rises they announced in August because of higher oil and gas prices.
So you can't blame consumers for being confused – and angry. Companies need to open their books to explain what their real costs and profits are. But with four of the Big Six suppliers foreign owned, it's especially hard for anyone – journalist, analyst or Government – to measure the flow of profit and investment between operations in different countries.
There was uproar when it emerged recently that French customers pay less for their electricity than those in the UK. This led to the accusation that British customers of French group EDF were subsidising customers in France. Much more likely an explanation – as EDF UK's Vincent de Rivaz asserts - is that currently nuclear power, which provides most of France's electricity, is cheaper than other forms like renewables or coal more common in the UK. But unless EDF – and the rest of the Big Six – open their books, we won't know for sure.
This sad state of affairs is likely to continue. The British government is terrified that the energy companies won't build the new reactors and wind farms needed to keep the lights on. Previous attempts to lean on them – such as the windfall tax – have ended in a humiliating climbdown by the government. This puts the big energy companies in a powerful position. Any move to force the Big Six to be more transparent about their prices is likely to end in a similar defeat – leaving energy consumers in the dark about their record fuel bills.
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