Who protects energy consumers from soaring bills?
By Damian Clarkson    06th February 2008

Energy suppliers are set to post record profits as consumers’ bills mount up, yet the regulator insists the UK energy market is working fine.

Multi-national bank Citigroup has reported that British Gas’ operating profits for 2007 are up 600% on 2006, as suppliers across the board are expected to post healthy profit margins.

In stark contrast to this is the plight of their consumers, who increasingly finding it increasingly difficult to meet their skyrocketing bills. A survey by the energy watchdog found a 64% increase in the number of households owing more than £600 on their electricity bills between 2004 and 2007, while for gas bills the figure was 19%.

Situation worsens
Struggling consumers have been hit by hikes again this month, as three providers upped their prices by 15% on average, with the other three expected to follow suit in the coming weeks.

The situation has become so severe that the watchdog, EnergyWatch, has called on the Competition Commission to investigate the possibility of price fixing by the ‘big six’ energy suppliers.

According to CEO Allen Asher, the market has become “uncompetitive” and is not "delivering value to consumers”.

Ofgem happy with market conditions
Yet despite the current furore surrounding energy prices, the regulator, Ofgem, remains convinced the market is competitive and working well.

A spokesman told EveryInvestor that an investigation into price fixing was unnecessary, as the regulator had found “no evidence of collusion or market rigging”.

Asked what Ofgem made of the suppliers predicted record profits in light of skyrocketing costs for consumers, he said it was not something for the regulator to comment on, but rather for the suppliers themselves to justify.

British Gas, the nation’s largest supplier which also enjoyed the biggest increase in profits last year, had yet to respond at the time of publishing.

No correlation in wholesale and retail prices
Many critics of the energy suppliers have claimed they are quick to pass on wholesale gas price hikes to the customer, but not price cuts.

As an indication of this, three of the big six suppliers have already reacted to the recent price hikes, right in the middle of the high consumption winter months.

Yet according to price comparison site uSwitch, wholesale gas prices fell by nearly 50% between mid 2006 and 2007, yet not a single supplier cut its prices by more than 20% in that time.

Massive price difference
Obviously suppliers have to change retail prices if wholesale gas prices increase. And it’s worth keeping in mind that the government’s “green” taxes imposed on suppliers also play a part in pushing up consumers bills.

However, the idea that we are benefiting from a competitive market and that prices are as low as possible needs to be questioned.

Firstly, because there is a massive difference between the cheapest and most expensive tariffs, even though they are exactly the same product. An average consumer will pay £769 annually on E.On’s online tariff, but switch to nPower’s standard tariff and the cost jumps to £1,056 – some 37% more expensive.

Even once you factor in the predicted 15% price rise by E.On, it’s clear there’s still a massive discrepancy, and that many consumers are getting a raw deal.

Profits speak volumes
The second reason to question whether we are indeed paying the lowest possible price is down to the profits enjoyed by suppliers last year.

Considering the pool of energy consumers isn’t getting any larger – we all use gas and electricity already – it can only mean they are making more money than usual from us.

According to CitiGroup, British Gas’ residential supply arm earned £5.93 from each customer in 2006, but just one year later it had ramped that up to £39.92. Regardless of wholesale prices, UK households have become far more profitable in a short space of time.

Do what you can
This all leaves energy consumers in a desperate situation. Gas bills have skyrocketed 82% in the last four years alone, while electricity is up 61%, and the average customer now pays more than £1,000 a year on energy bills.

With no cut in energy prices on the cards, the only weapon left to the customer is switching. Not only does it send a clear message to your current provider that high prices won’t be tolerated, but it can also save you a substantial amount of money.

And because it can be done online or telephonically for free, it needn’t require a lot of hassle.

How to go about it
Your first step must be to compare the tariffs of energy providers in your area, as no one supplier is cheapest across the nation. Do this at a price comparison site,

Provided you have access to the Internet, online tariffs are always notably cheaper than standard deals – up to £188 in some instances - as they are easier for suppliers to maintain. The only noticeable difference from your side is that you won’t receive bills in the post and will have to manage your account online.

Similarly, ensure you pay by direct debit as suppliers prefer this payment method, charging consumers extra for not doing so. Read more about switching here.

Following these steps should help cut your monthly bills, but it’s worth mentioning that suppliers are constantly changing their tariffs, so what is cheapest today may not be in a couple of month’s time.

So check in routinely to see if there are savings to be had at another provider. Remember that it’s free, and it is your only weapon against soaring bills.

Article produced by EveryInvestor.co.uk