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No sign of cheaper energy bills despite market privatisation

By David Prosser

Published 12/01/2011

With E.On raising its gas and electricity prices yesterday, five of the big six energy providers have now announced bill increases in recent weeks (the exception being EDF Energy, for which a rise is no doubt only a matter of time once its price freeze promise expires).

It's a brave move by the energy industry, which is the subject of an ongoing investigation by Ofgem, the sector's regulator, into pricing. The trigger for that inquiry, announced before Christmas, was Ofgem's concern about rising profit margins. For while it is certainly true that the energy companies have seen a dramatic increase in wholesale costs since last spring, particularly in the gas market, where prices have risen by 54% over the past nine months, it is also the case that margins are close to their historical high.

To put that into numbers, the cost of the gas you buy for your home is now within touching distance of the all-time high, of around 3.5p per kilowatt hour (KWh) seen in September 2008. But while the wholesale price then was 3.2p per KWh, today it is around 1.8p. So, wholesale prices are down by about 40% but there has been no corresponding fall in home energy bills. The point of energy market privatisation, all those years ago, was to enhance competition. Would it surprise you to know, therefore, that the difference between the cheapest and most expensive of the big six providers for a year's worth of gas and electricity is just £23?

Over to you Ofgem.

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