Utility Week

UTILITY Week 19th February 2016

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utILIty WeeK | 19th - 25th February 2016 | 25 Customers Analysis T he big suppliers have finally relented to pressure that has been mounting since last summer and have cut their energy tariffs. However, with gas prices falling by around 5 per cent and electricity prices static, some observers say the cuts are too lit- tle, too late. Aer last May's general election victory, energy secretary Amber Rudd began the calls for the big six to cut their prices "in light of the greater regulatory stability" that the dawn of a Conservative majority government would bring. More than six months on from the energy secretary's letter to each of the major sup- pliers demanding tariff cuts, and following accusations from Ofgem chief executive Der- mot Nolan that the big six were "overcharg- ing" customers, SSE became the first to move. In January it announced a 5.3 per cent cut to its gas prices. The five other energy retail giants fol- lowed suit over the course of the next month, all announcing price cuts to their standard gas tariff around the 5 per cent mark: Eon 5.1 per cent; Scottish Power 5.4 per cent; Npower 5.2 per cent; EDF Energy 5 per cent; and finally British Gas 5.1 per cent. Independent suppliers Utilita, Ecotricity and Good Energy also used this period to announce gas price cuts, of 3.5 per cent, 7 per cent, and 7.2 per cent respectively. While any price cut will be a welcome relief to customers, with wholesale gas prices having fallen 53 per cent in the past year, and wholesale electricity prices down 34 per cent since 2012, criticism of the suppli- ers has not abated. Gocompare.com energy spokesperson Ben Wilson slams the cuts as "paltry", while Comparethemarket.com head of energy James Padmore says the cuts "seem like a meagre attempt at mitigating the bad press received over the past month". Padmore adds that it seems "convenient" that the price cuts will come into effect as winter comes to an end and "aer the period in which their customers need it most. "The question remains, why can't these cuts be introduced immediately?" Which? executive director Richard Lloyd says the "price reductions are a step in the right direction" but questions whether the uniform level of the cuts, and the fact that they fail to reflect falling wholesale costs, "will rise questions in many people's minds". Energy secretary Rudd agrees with Lloyd that the cuts are "a good start", but the pres- sure remains. The Competition and Markets Authority (CMA) investigation remedies are due in March, with the final report to follow in June, and these will aim to increase com- petitive pressure and consumer engagement. The gas price cuts may be enough to save the suppliers from a CMA-imposed price cap, but they are unlikely to be enough to keep minis- ters and the media at bay for long. Too little, too late? All the big six suppliers have now announced cuts to their domestic gas prices, but Saffron Johnson doubts whether that will keep the media and ministers off their backs for long. Ofgem chief executive Dermot Nolan Before the cuts: "Companies have failed the 70 per cent of customers still on standard var- iable tariffs by keeping prices high, at the same time that the Competition and Market Authority is investigating concerns that these same tariffs exploit a lack of consumer engagement in the market." Aer: "We really should be seeing bigger retail cuts than we have seen so far. The best protection for customers in the long run is a fully competitive market." Energy secretary Amber Rudd Before the cuts: "In light of the greater regulatory stability we are providing and continued stability in wholesale gas prices, I believe that energy sup- pliers should be seeking to regain the trust of consumers by reflecting this in their pricing decisions." Aer: "Six major suppliers have announced a further cut in their tariffs. It is a good start, but the government expect all suppliers to pass on reductions in the costs of supplying energy to consumers. "We continue to watch the energy compa- nies like a hawk." Citizens Advice chief executive Gillian Guy Before the cuts: "There can be no more ifs and buts, all energy firms must now cut household bills. Consumers have seen their energy bills rise by a third since 2010 yet figures show whole- sale costs to be at a four-year low." Aer: "Households are paying over the odds for energy. Wholesale costs are plummeting but consumers aren't feeling the benefit. "Suppliers need to play fair with custom- ers and pass on the major savings they have been making from cheap wholesale costs." Then and now… wholesale UK gas prices Source: Energy Solutions 2011 2012 2013 2014 2015 pence per therm 75 70 65 60 55 50 45 40 35 30

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