Ofgem, the regulator for the energy industry, have warned energy companies to make changes to their tariffs or face a cap on their prices.
The price of gas and electricity has risen steeply over the past few years. On average, fuel bills are currently around £1,250 per year – double the levels they were in 2002. In 2011, energy companies increased their prices further in a move which had been criticised for potentially forcing more and more people into fuel poverty.
People are considered to be in fuel poverty when over 10% of their household income is spent on heating and powering their home. In the UK, there are now an estimated 5.5 million people living in fuel poverty.
At the start of this year the energy companies did announce a small fall in their fuel tariffs, but they indicated that they expect them to rise again later in the year. Many companies in the UK are worried not just about their energy prices but also the cost of company private health insurance.
A milder winter has seen the wholesale price of energy fall throughout season, and these falls were cited as a reason for the drop in tariffs. However, the wholesale price of energy tends to fluctuate throughout the year and was previously cited for much bigger tariff rises last summer.
Last year, an Ofgem report on the energy industry labelled the top six energy companies in the UK as ‘greedy.’
In the case of EDF Energy, who were the last energy supplier to raise their prices and the first to lower them, electricity rose by 4.5% and gas by 15.4% in November last year. However the gas tariff only fell by 5% in January, after a 9% fall in wholesale prices throughout winter.
The Ofgem report suggested the main suppliers, British Gas, EDF Energy, E.On, Scottish Power, Scottish and Southern Energy and nPower, all manipulated price rises, putting them up quickly when wholesale prices rose, but delaying dropping them when wholesale prices fell.
The six main energy suppliers control about 99% of the market and concerns have been raised about the competitiveness of the energy industry. Ofgem have suggested that the Competition Commission may need to perform an inquiry which could help open the market up to smaller firms.
The energy regulator want prices to fall and said it may be forced into introducing tougher regulations on the industry. Ofgem have ordered energy companies to change their tariffs to make them less confusing and expensive, adding: “Parliament has given us the task of trying to create an effective market where competition is the downward pressure on prices. We think that’s the way to go, although we haven’t ruled out regulation, particularly for more vulnerable customers, if our reforms don’t work.”
The news comes after EDF Energy announced an 8.5% rise in annual profits to £1.6 billion.
British Gas profits fell from an all-time high of £742 million in 2010 to £550 million in 2011.
A spokesperson for the consumer group Which? questioned how energy companies can announce increased profit levels, particularly after a mild winter and when people millions of people are struggling with the cost of living.