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Which? claims energy price falls too little

big 6 energyAnother day, another round of energy attacks from our politicians. Thank the good lord we are not a high street chemist.

The latest lambasting of the Big 6 energy suppliers came from price comparison website (or consumer champion depending on who you listen to) Which?

Which? have done an Ofgem and collated their ‘own’ SMI.

The problem is the results are being strongly contested as are the conclusions drawn and the methodology used.

Dr Richard Westoby, Director of Retail Economics at SSE was reported in the Daily Telegraph as saying:

“Our audited accounts show that in reality SSE made £48 profit per customer in 2013/14, far less than this report implies.

“This analysis ignores many fundamental factors behind movements in household bills and suppliers’ costs, ranging from weather and consumption to green levies and network costs.”


Whilst energy supplier trade body Energy UK explained:

“The Which? calculations are based on very many assumptions. Each company allocates their costs differently and this makes it difficult to estimate wholesale costs and hedging strategies.

“[The analysis is based on] hedging assumptions for 2013 [which] are different from Ofgem’s [SMI] report based on the companies’ actual accounts.

“Costs are coming down but, because energy companies buy ahead to fix prices and to plan with certainty, the gas and electricity we are using today has already been paid for.”


But that thinly veiled accusation of inaccuracy or “you don’t know what you’re talking about” emanating from the suppliers didn’t stop the pre general election hyperbole. Step forward shadow energy secretary Caroline Flint, always quick to seize the opportunity who said:

“This research adds to the growing body of evidence showing that energy companies do not pass on reductions in wholesale costs as quickly or as fully as increases.”

Hmmmm. Evidence from the much maligned regulator and those with a vested interest in mobilising customers to switch energy suppliers for their own commercial gain (nothing wrong in that of course but hey, be honest about it).

Which? had claimed that a fair reduction over the past year would have been 10.3% for gas and and 10% for electricity.

Which?’s Richard Lloyd said:

“Our analysis places a massive question mark over how suppliers have been setting prices over the last two years.

“They now need to explain to their customers why bills don’t fall further in response to dropping wholesale prices.

“While the competition inquiry should establish beyond doubt whether the price people are paying today is right, consumers will now look to politicians of every party to set out how they’ll deliver fair and affordable energy prices in the future.”

Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, said:

“The Big Six should either come up with a credible justification for the slow pace of their current price falls or, better still, cut prices further and faster”.

Our own BJMMI, which takes a three month view of the wholesale and retail market this week suggests a ‘true’ pass through of wholesale market price falls would be 4.3% for electricity and 7.97% for gas. Significantly lower than the Which? estimates. And with actual retail price falls of 1.17% and 4.72% the market, according to our assumptions clearly isn’t passing through all the decreases.

BUT our analysis has also revealed the extent to which hedging affects the retail price and the increasingly small part that the actual cost of the energy makes up of the retail price.

An inconvenient truth? It would appear so.