How the Big Six misled the Energy and Climate Change Committee

If it's not wholesale prices or green levies that are causing such large spikes in the retail price, then what is?

Gas hob

The big six energy suppliers gave evidence to the Energy and Climate Change Committee yesterday afternoon following a series of price rise announcements.

Predictably, they blamed higher wholesale energy and infrastructure costs – plus the extra green levies imposed by the government.

“External costs are driving our prices increase…We are not raising them in anticipation of a price freeze,” said external affairs director at Npower Guy Johnson.

We’ve already dealt with the question of whether green levies are to blame for price rises, so for the moment we’ll look at wholesale energy prices.

Unquestionably over the longer term the increasing price wholesale energy has had an upwards impact on bills: in the last eight years energy bills have risen by £520, and the Committee on Climate Change blames this on the rising price of gas (over the same period measures to support low carbon technologies have added just £30).

But this doesn’t account for the recent price hikes.

As smaller energy supplier OVO points out on its website, the most expensive price it paid for wholesale gas in the last four years was in May 2011 – since then the price has come down. As the founder of the company Stephen Fitzpatrick put it during yesterday’s Energy and Climate Change Committee:

“the point we are trying to enforce is that prices right now are fairly similar to levels two years ago…Since then it has been below 72p a therm for this winter, last winter and next winter. We are buying gas for next winter at a current price of 69p a therm.” (therefore massive hikes this year cannot be justified).

The below graph shows recent wholesale price fluctuations in the price of gas.

Wholesale gas price

Gas wholesale price

As you can see, wholesale prices have gradually come down since peaking in April and are now in line with prices two years ago, as the below graph shows – the price of gas is around 70 p/therm in both October 2011 and October 2013.

Wholesale gas 2011

And yet the price that customers pay for energy has gone up and up and up during the last two years, along with the profits of the big energy firms: profits at the Big Six have increased by 74 per cent in the past two years. There has also been a flurry of recent price rises:

  • Last week Scottish Power (SP) announced that would be putting up the price of its gas by an average of 8.5 per cent and electric by 9 per cent from 6 December.

  • Npower announced last week that it would be putting up energy bills by 10.4 per cent from 1 December – the highest price rise so far by any supplier.

  • Energy company SSE announced two weeks ago that it would be raising electricity and gas prices by an average of 8.2 per cent from 15 November.

  • Earlier this monthBritish Gas announced that bills would go up by an average of 9.2 per cent for 8 million customers from November 23.

If it’s not wholesale prices or green levies that are causing such large spikes in the retail price, then what is?

As Mr Fitzpatrick put it yesterday:

“It looks to me like a lot of energy companies – a significant number of the big six – are charging the maximum price they feel they can get away with to customers they feel will not switch under any circumstances.”

2 Responses to “How the Big Six misled the Energy and Climate Change Committee”

  1. JR

    Worth noting that Ovo are too small to pay most of the environmental and social obligations that are placed upon larger companies. If they grow, they will need to handle these too.

  2. nodbod

    “I know, I know, let’s say the price increase is for the infrastructure upgrades that the government wrote into the contracts.”
    “Yeah, that’ll get’m off our backs.”
    “But we haven’t done any infrastructure upgrades.”
    “No, but we did have a meeting about not doing them.”

    “And this time?”
    “Green energy policies.”
    “But they actually cost less than we get in the green energy surcharge.”
    “How do you know that? No-one else knows that. Have you got insider information?”

    “Ah, it’s easy this time. Wholesale prices.”
    “But they’ve fallen,”
    “Yes, but they may go up again.”

    “Got it. Wholesale prices.”
    “Didn’t we already do that in anticipation?”
    “Yes but now it’s happened for real. And it may go up more so we had best up it more than usual, just in case.”

    “Scottish Power have just put their prices up.”
    “Well, what are you waiting for? Do Sottish Power less 0.5%. We’ve got to pretend it’s a competitive market.”

    “Do you know how much we pay wholesale for energy?”
    “No. Nobody does.”
    “Good. Go and announce a price increase as we are having to pay more for wholesale.”
    “But don’t we own the wholsale suppliers?”
    “Hadn’t thought of that. Add another couple of percentage points.”

    “How long is it since we put up prices?”
    “Gosh, must be more than six months.”
    “OK. We’re being pushed to improve the infrastructure so we’ve got to put up prices. Nobody wants the infrastructure collapsing. Nobody wants to get home to a cold dark house.”
    “But wasn’t that the reason six price rises ago.”
    “Dunno. Was it? It don’t matter ‘cos the peasants won’t remember anyway.”
    “Do we have any plans this time?”
    “Don’t be silly. They cost money. Besides when it does all fall over we’ll have to explain that we haven’t got any money, it’s now an emergency and if the government really want it made good then they will have to pay.”
    “Won’t that mean that we’ll have breached the terms of our licence?”
    “Do you know how much we contributed to Conservative Party funds? I don’t think there’s going to be a problem, do you?”

    Repeat ad nauseum

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