The sliding wholesale cost of gas is starting to filter through to household bills. This week, Scottish Power and British Gas said they would lower their prices for customers not on fixed tariffs by 4.8% and 5% respectively. This follows a 3.5% price cut by Eon last week.
Consumer groups criticised the reductions as too little too late, noting that wholesale prices have fallen by 20% in the past 12 months.
What the commentators said
It’s just as well we didn’t go for Ed Miliband’s price freeze, said Alistair Osborne in The Times. Had it been in force over the past 18 months, “bills would have stayed artificially high”. When he “came over all ice age” in late 2013, the wholesale gas price was 65p per therm. Now it’s 46p and sliding.
As to why prices are only now coming down, said Allister Heath in The Daily Telegraph, imagine if companies cut prices by 1p every few weeks, only to have to hike them by the same amount when wholesale conditions reverse.
Our retail energy prices would be chaotic and unpredictable. Better to lock in prices in advance, ensuring at least medium-term predictability for consumers.
Now that wholesale prices look set to stay low for some time, companies are becoming more confident about passing lower costs on. Note too that wholesale prices comprise only half of overall costs.
Transport and distribution is becoming dearer, while green taxes have also risen. “Energy firms’ profit margins are pretty low, as their annoyed shareholders would be the first to point out.”
Yet you can’t help noticing, said Alex Brummer in the Daily Mail, that there’s a “lack of symmetry” here. The six major energy firms tend to pass on rising world prices quickly, yet when they fall they drag their feet.
And ask them to reveal their buying or hedging strategies, added Osborne, “and they become awfully coy”. What are they hiding? Hedging at the wrong price to lock in costs before a potential Miliband election win? No wonder Ofgem, the regulator, has “packed the companies off” to the Competition and Markets Authority.