Ofgem should force suppliers to cut energy bills, says Miliband

Labour party leader Ed Miliband on Sunday said Ofgem should be given powers to force energy companies to pass on lower wholesale energy costs to customers by cutting bills.

The opposition party leader told the BBC that Labour will bring before parliament a vote on whether to push through new laws to enable the regulator to force bill cuts before the May general election.

“We’re going to bring before the House of Commons a vote in Parliament to say the government should bring forward fast-track legislation to ensure that we give the regulator…the power to cut prices,” Miliband told the Andrew Marr show.

“We see wholesale costs go down 20 per cent in gas prices over the last year and no reduction in bills,” he added.

Pressure on the UK’s energy suppliers to pass on the historic lows seen on the gas and power market are strengthening following calls last week from Conservative Chancellor George Osborne to ensure the lower costs are reflected in bills. 

But trade body Energy UK have hit back at the suggestion saying that companies have already brought prices down compared to last year.

“No new powers are needed. Energy suppliers are already passing on price cuts to customers. With over 25 suppliers in the market competitive pressure is forcing down prices every week. When people shop around they can easily find deals that are over a hundred pounds cheaper than this time last year and line with falls in the wholesale energy price part of energy bills,” said Energy UK chief executive Lawrence Slade.

Slade added that energy companies typically buy their gas and power from the wholesale market ahead of time meaning it will take time for the full impact of lower market prices to feed through. Furthermore, wholesale costs make up under half of the average energy bill, meaning cuts couldn’t be as dramatic as those seen in the market.

Utilities analysts at RBC Capital said in an investor note on Monday morning that the big six suppliers typically hedge the wholesale energy buying on a 3-year horizon, smoothing energy costs for customers.

“This stops customers from experiencing large swings in energy costs, both up and down. In a declining commodity cost environment this means benefits from falling costs cannot be passed straight onto consumers,” RBC Capital said.

Smaller suppliers are at an advantage in a falling commodity cost environment because their limited forward-hedging strategy means they are able to pass costs on quicker.

Independent supplier First Utility said it has dropped its prices 8 times over the last year “reflecting a drop in wholesale energy”. It most recently cut its prices on Wednesday, it said.

Utility Week contacted all of the big six suppliers late last week, but none could confirm plans to cut prices.

“Therefore, declining commodity costs are bad news for the big six for two reasons. First, smaller suppliers will become more price competitive potentially making further inroads into the big six’s customer base. Second, if the big six are forced to pass on lower energy costs they may then be faced with a tariff freeze post elections which could coincide with commodity prices once again rising,” RBC Capital said.

“In short, political risk remains high for UK utilities in the run-up to the election. Most exposed are Centrica and SSE as they have the largest supply bases,” the analysts added.

The vote is due to take place in parliament on Wednesday 14 January.