Energy bills finally start to fall

published 22 January 2015

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

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.

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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.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.