Today’s Mail energy piece – hot gas from vested interests

The Mail seems intent on becoming a mouthpiece for the Big Six.

The Mail seems intent on becoming a mouthpiece for the Big Six

“Red Ed blunder blocking cuts to your power bills.”

Or so reads the headline of a piece in today’s Daily Mail, which quotes from “anonymous energy industry sources”.

It looks remarkably like the mega-companies are pushing for a Tory victory via their friends in the right-wing press, with one high-up source apparently telling the paper: “if [the polls] point to a Labour win, then reductions in bills are unlikely”.

Subtle.

These industry insiders – including “one of the most senior executives at a big six energy supplier”– are alleging that Miliband’s price freeze pledge is resulting in companies being too scared to pass on current low wholesale prices to customers for fear of being forced to keep them that way (if Labour wins the next general election, of course).

And yet the story relies upon the assumption that energy companies would otherwise have passed on lower wholesale prices to customers had it not been for meddling Miliband. Unfortunately for the Daily Mail, history doesn’t bear this out.

Consumer Focus research from 2013 revealed the relationship between retail and wholesale prices in the energy market before Miliband’s energy policy announcement. Needless to say, retail prices tend to bear little relation to the wholesale market. Here’s the electricity market:

electricity

And the picture is almost identical for gas:

gas

We therefore see the same image, most poignant looking at the 2008 crash. A £50 per megawatt hour (MWH) reduction in wholesale prices in late 2008 actually led to – guess what – almost zero change in the average cost to the customer.

Left Foot Forward covered this last month, noting a Times story which said: “over the next 12 months energy companies are forecast to make an annual profit from each dual-fuel household of £96, up from £91 last month and £44 a year ago” – on top of a 77 per cent per customer rise in profits among the Big Six last year.

This past few months alone, wholesale prices have plummeted for the energy companies while profits have soared:

lff pic

At the other end of the spectrum, wholesale price increases are almost always met with disproportionately huge retail price hikes, as Mark Ferguson at LabourList reported last year:

wholesale-vs-consumer

So, surprise surprise, energy companies’ profits are soaring while wholesale prices are plummeting – meaning there is plenty of money around to lower bills for customers.

Above all though, as the first two graphs showed, energy companies almost never lower their prices following reductions in wholesale costs – meaning today’s bluster about Miliband’s freeze pledge is just a load of hot gas from a paper which seems intent on becoming a mouthpiece for the Big Six.

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