Big Six face challenge over power bills
Britain’s energy regulator is on course to clash with the "Big Six" power companies this week over the importance of wholesale gas and electricity prices in rising customer bills. British Gas, SSE, Scottish Power and npower have all used the argument of mounting wholesale costs – which make up nearly half of household bills – to justify recent price increases averaging 9.1 per cent. They have also blamed government green schemes and rising network charges. But data from energy regulator Ofgem show wholesale prices have been almost flat over the past year, rising by a mere 1.7 per cent. According to the regulator, wholesale costs should contribute only around an additional £10 to household charges. This element of the average annual bill has gone up from £600 to £610, according to Ofgem, while the regulator estimates that the companies’ average net profit margin has more than doubled over the past year from £45 a household to £95. The findings will prove awkward for company bosses, who are due to appear in front of the energy select committee on Tuesday amid mounting anger over rising bills. With the effect of the recent price rises, the average dual fuel energy bill has now risen to £1,320 per household. Labour has promised a 20-month price freeze if elected in 2015, while Sir John Major, the former Conservative prime minister, last week called for a windfall tax. The regulator’s data on wholesale power costs is contained in its Supply Market Indicators which show the annual costs per customer that suppliers incur for delivering electricity and gas. However, energy companies claim the method Ofgem uses is flawed. In explaining their recent price rises, SSE said the average wholesale cost of energy for this year was 4 per cent higher than in the previous year, while Scottish Power said it had jumped 7 per cent. "The prices that individual suppliers pay depend on their own hedging strategies, and the Ofgem methodology is, at best, an approximation of what those hedging profiles are," a British Gas spokesman said. "We buy a certain amount of gas more than two years in advance, and if you look at the 24 month figure to October 2013, there has been an 18 per cent increase in the wholesale cost." SSE said the suggestion that wholesale costs had not risen over the last year was "simply false". "This is very much a global market and we are seeing increased international competition for supplies, which is putting up prices," a spokesman said. However, Ofgem did agree with the suppliers that wholesale prices were continuing to rise. It said the price of gas for use this winter would be 8 per cent higher than for last winter, and the price of electricity 13 per cent higher.