ENERGY

The big energy rip-off

Scott Byrom, Utilities Manager

The majority of consumers believe they are paying too much for their gas and electricity and that recent price increases are totally unjustified, according to a poll on moneysupermarket.com.

In what was the second highest response to a poll in Rate Alert history, more than 2,800 readers had cast their votes at the time of publication and the results are definitive: British households believe they are being held to ransom by greedy energy providers.

A staggering 77% of respondents said recent price rises are completely uncalled for and that providers are ripping them off, while 18% believe prices are too high and that they are being ripped off to a certain extent. Only 2% feel the price increases are totally justified and 3% said that although they are not happy about the fact their bills have risen again, they believe they get a fair deal.

Why do consumers feel so aggrieved?

Five of the big six energy firms - British Gas, EDF Energy, Eon, Npower and Scottish Power - have increased their gas and electricity prices by an average of 15% since the beginning of the year. The typical household now pays more than £1,000 a year for energy - up from around £650 three years ago.

Scottish & Southern Energy (SSE) has left its prices unchanged so far but its price freeze is only guaranteed until the clocks go forward at the end of the month.

The energy companies blame the recent increases on rising wholesale prices. However, as the results from our poll indicate, most consumers are not convinced by this justification, and it appears as though they are not alone.

Industry investigations under way

Such is the concern that Ofgem, the industry regulator, has launched an investigation into Britain's gas and electricity markets. Though publicly the regulator has stated it has "no clear evidence the market is failing" and that there is no proof of price fixing, it said the issue needs probing because customer confidence in the way energy firms operate has been severely hit as a result of recent actions.

While wholesale prices have gone up in recent months, there are worries that providers may be using these increases as an excuse to pass on price rises and boost profits, particularly as we didn't see the same level of price reductions when wholesale prices were falling.

And firms are seeing profits soar: British Gas announced a five-fold increase in profits last month, only weeks after putting its prices up. It made £571m in 2007, up from £95m the year before. Npower has also seen a big increase in revenue - it made a profit of £544m last year, 41% higher than 2006.

Government action

The government is also concerned about the profits energy firms are making because rising bills are pushing more and more people into fuel poverty - this means they spend more than 10% of their income on energy bills. More than four million households are in this position.

Treasury and energy ministers are considering a scheme whereby energy firms would give back a percentage of their profits in the form of energy vouchers to those most needy.

Energywatch, a consumer watchdog, has also tried to shame the companies into offering rebates - British Gas has been the most generous, assisting 700,000 customers, while Npower and SSE have helped closer to 54,000 and 26,000 respectively.

What should consumers do next?

Consumers don't need to wait for the results of Ofgem's probe and the government's initiatives - there are steps you can take now to bring your energy costs down.

The message is simple - move to the best deal you can. Despite the recent price increases, there are still significant savings to be made.

Six out of 10 households have never changed their energy provider and are still on the standard tariff paying quarterly by cash or cheque. By switching to an online tariff and opting to pay monthly by direct debit, the average household could save up to £260 a year.