Energy firms are overcharging customers and bills should come down for the vast majority of people, the boss of regulator Ofgem has said.
The watchdog’s chief executive, Dermot Nolan, said “we really should be seeing bigger retail cuts” due to falling wholesale energy prices.
The absence of major price cuts is due to a lack of competition in the energy market, Mr Nolan said as he encouraged consumers to switch suppliers to seek a better deal.
Asked if he thought energy should be cheaper, he told the BBC Radio 4 Today programme: “I believe it should – at least I believe it should for the vast majority of people. The biggest component of your energy bill is the wholesale cost – it’s approximately half the bill, maybe a shade under, it has fallen by nearly a third over the last year to year-and-a-half.
“We really should be seeing bigger retail cuts than we have seen so far.”
Asked why that was not happening, he said: “I think we are not, because the market is not working as competitively as it should be. The best protection for customers in the long run is a
fully-competitive market. I don’t think it is, which is why we referred the market to the Competition and Markets Authority (CMA) who are due to report in the very near future.”
Pressed on whether the market was “ripping customers off”, Mr Nolan said: “I think they are overcharging in many cases.”
He added: “I think what they are consciously doing is charging as high as they think people will get, which is an endemic feature of any market, but the main protection for consumers is a competitive market.”
The CMA is investigating the market, which is dominated by the Big Six energy giants, but Mr Nolan said that, until the competition watchdog reported, the best advice for consumers was to switch tariffs or suppliers.
“The best protection consumers have currently is to try and switch,” he said, adding they could save up to £300.
Lawrence Slade, chief executive of industry body Energy UK, told Today: “There are a number of different companies out there – we have got 34 different suppliers out there, there are a range
of different tariffs to suit different people’s options.
“As Ofgem say, we are fully behind getting people engaging in this market and getting people on the best deal.”
But he added that falling wholesale costs did not necessarily mean bills should be cut.
“Yes, they do represent a big chunk – around 45% of the average dual-fuel bill is wholesale costs. What isn’t coming out is all of the costs that are added on to consumers’ bills that are outside of a supplier’s control.
“Some of those costs over the last year have actually increased, in one case by 20%.
“When you look at that, and you look at a world where we are actually decreasing our consumption of gas and electricity due to energy efficiency measures, that reduces quite substantially the room that any supplier has to reduce bills at a time when wholesale prices are coming down.”