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Ofgem Accountants to Investigate Wholesale Fuel Prices

By Katie Anderson on July 6, 2011

Ofgem has instructed a team of forensic accountants to scrutinise the wholesale fuel prices paid by the “Big Six” energy companies, after a 27% gap in wholesale prices emerged.

Energy providers often use rising wholesale prices as a reason why they need to increase our energy bills. Since Scottish Power increased their gas and electricity prices last month, other energy firms are expected to follow suit, with British Gas rumoured to be making a similar announcement within the next few days.

However, figures provided to energy regulator Ofgem have revealed that some utility companies are sourcing electricity and gas far more cheaply than their rivals. This being the case, it undermines the argument that they are all facing identical commodity price pressures.

Case in point, Scottish Power’s retail business last year paid £68.3 per megawatt-hour for electricity supplied to domestic customers, which was 27% more than Centrica’s average price of £53.7 per megawatt-hour. Scottish Power procured its gas for domestic customers at a wholesale price of 59p a therm last year, which was 15% more expensive than EDF’s spend of 51.3p a therm.

The average price of electricity on the spot market last year was much lower than the prices paid by companies at £41 to £47.5 per megawatt-hour, while gas was trading at 42.47p per therm on average. Energy firms pay more for their gas and electricity than spot prices because they buy on long-term contracts to “smooth” volatility in a process known as hedging.

The energy companies said the different prices were simply the result of buying gas on different types of contract and over different time periods. However, a spokesman for Ofgem confirmed this was an “issue the accountants will be looking at” over the next month, when they will be delving deeper into energy companies’ accounts.