Households 'overcharged on energy by £1.6bn'

Thursday, 25 June 2009 12:00

Energy customers are being overcharged by more than £1.6 billion, according to a watchdog.

Consumer Focus said households are being overcharged by £74 a year as falls in energy prices have not been fully passed on by suppliers and the consumer group is calling for an immediate cut in bills.

Philip Cullum, deputy chief executive of Consumer Focus, said: "The companies are pocketing £1.6 billion extra, while millions of households struggle to make ends meet.

"Energy firms should take immediate action to put things right for their customers. A failure to act, and to ensure that people pay a fair price for energy, could have serious consequences for the sector."

Current gas prices should be at least 7.4 per cent cheaper, while electricity bills should be 3.1 per cent lower if providers had passed on the decline in wholesale prices in full, Consumer Focus added.

An immediate cut would save £157 on current prices by the winter, bringing the average annual gas and electricity bills to £1,095 by the new year.

If suppliers cannot be persuaded to cut costs, the government should step in, the watchdog said.

Garry Felgate, chief executive of the industry body Energy Retail Association (ERA), added: "It is misleading of Consumer Focus to suggest that consumers are being overcharged. The amount of gas and electricity a customer uses can form as little as half their annual bill.

"The remainder includes other costs, such as transporting gas and power around the country and meeting the government's carbon emissions reductions targets - all these costs have risen sharply in recent years. Consumer Focus has ignored these facts during its research."

Ofgem, the regulator responsible for overseeing energy firms, agreed that should
wholesale prices continue to fall, there will be pressure on companies to reduce their bills.

However, Ofgem added it also had concerns the report could "mislead" consumers.

"Contrary to press reports today, Consumer Focus have not used the same approach for calculating wholesale costs as Ofgem. We have shared with them our concerns about their methodology.

"We are concerned that their approach may mislead consumers and for customers' sake hope they will be open about the analysis they have used to reach their conclusions."

The government has blamed sharp rises in energy bills over the last few years for putting the goal of eradicating fuel poverty throughout the UK further out of reach.

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