Long term hedging and non-wholesale costs ‘stopping bills falling’

The long term hedging strategies and increasing non-wholesale costs related to the supply of energy are preventing energy bills from falling in the near-term, according to the major suppliers.

The energy companies were responding to a letter from Ofgem, calling on them to explain to their customers what impact falling wholesale prices will have on energy bills.

British Gas, which can buy gas and electricity up to three years in advance, said this strategy meant movements in wholesale prices “do not feed through immediately to retail prices”.

Ian Peters, managing director of residential energy at British Gas, added: “We have other costs that are rising – regulated transport and distribution costs, environmental costs, metering costs.

“We are certainly not increasing profits on the back of lower wholesale gas prices – our trading statement last month downgraded profit expectations.”

Energy UK also stated that “it can take time for bills to catch up” with lower wholesale prices due to the suppliers potentially buying their energy years in advance.

SSE chief executive Alistair Phillips-Davies highlighted the “rising costs” in non wholesale costs, such as government-mandated schemes, and once again called for these to be moved into general taxation.

He also added that, while wholesale energy prices have fallen for this summer, gas prices for this winter (2014/15) and the following winter (2015/16) “have not, in fact, reduced significantly”.

Ann Robinson, director of consumer policy at Uswitch.com said explaining energy costs would be “an effective first step” towards restoring consumer trust.

However, she added: “Rather than long-winded explanations on why prices are still so high, what consumers really need is a reduction to their energy bills.

“Actions speak louder than words.”

Independent energy supplier First Utility said that “it is only right” that the savings due to lower wholesale prices should be passed onto consumers.

Ed Kramm, chief customer officer at First Utility, added: “This is where competition plays a crucial role in the energy market – if the big six don’t want to pass on savings then consumers have the option to switch to suppliers that do.”