Gas supply firms warned on bills

The UK energy regulator, Ofgem, has warned energy supply companies that households must benefit from a fall in wholesale gas prices.

Ofgem said that if wholesale prices continue to fall, bills must come down in the New Year to avoid the customer losing out.

The regulator said companies must not "use investment as a shameful excuse to overcharge consumers".

It added that customers can save around £200 a year by switching suppliers.

That's down to the emergence of new players in the industry providing competition.

A further investigation into retail prices will be launched in the New Year, and the regulator says it "will not shy away from proposing radical reform to protect the interests of consumers."

Ofgem said that at the moment firms were still recovering from three or four years of losses.

However it added that profit margins in dual fuel bills are at a five year high and they may rise further.

So far, the cost to the customer has been broadly neutral but if wholesale gas prices continue to fall as predicted, then companies will need to reflect that in their bills.

No profit

"The reality is that companies may be making some modest profit this year after around 4 years of making either none at all, or a loss," said Energy UK - a new communications unit representing the leading gas and electricity suppliers.

The statement added that energy itself only accounts for about half of customer bills - with the rest including things like the cost of renewable energy, as well as the cost of getting the energy from its source into homes.

A separate report by the economic consultancy NERA, commissioned by Energy UK, suggested that companies were making no profit from their dual fuel customers.

And the report indicated that the energy firms make only a small profit - £9 or £10 a year - from customers who take gas and electricity from different suppliers.

'Tough'

Separately, Ofgem said average electricity bills can increase by £4.30 a year for five years to pay for network upgrades.

The 14 networks that make up the UK supply were built in the 1950s and 1960s and are in need of investment.

Ofgem chief executive Alistair Buchanan said the proposals were "tough on inefficiency and poor service but fair in allowing the companies to invest".

And he said the new controls would lead to a greener electricity supply.

Mr Buchanan said Ofgem had cut the sum wanted by companies by 8% to ensure value for money for the consumer.

Ofgem said investment on the UK's electricity infrastructure would be up 40% - to £7.2bn - compared to the last five years' spending.

The new investment figure includes £500m for a low carbon energy fund.

Distribution networks

The 14, low voltage, distribution networks take electricity from the national grid and pass it to homes and business customers.

Before privatisation they were part of the state-owned regional electricity companies.

Now the networks are owned by seven separate firms: CE Electric, Central Networks, EDF Energy Networks, Electricity North West, SP Energy Networks, SSE Power Distribution and Western Power Distribution.

The networks are not electricity suppliers in their own right, so their charges are passed through to customers in the bills the suppliers send out, and make up 16% of those bills.

The network distribution costs, unlike overall suppliers' bills, are still formally regulated by Ofgem as the networks are natural monopolies and are not subject to competition.

FUEL BILLS

There are 14 distribution networks with seven different owners in the UK