Falling oil prices not being passed on

The energy companies are trumpeting their price cuts, and petrol retailers are making a song and dance about the fact that prices at the pump are going down. However, behind the good news lurks something very troubling: these falls are far too little, too late, and we're still facing a huge energy rip off.

The wholesale price of energy has been in free-fall since last summer, as the supply of energy has gone through the roof (largely as a result of the quantity of shale gas being produced). Normally when this happens OPEC will keep prices high by cutting back on production, but at the moment this isn't happening.

There is plenty of speculation as to why this may be - with some suggesting it could be an effort to hit the profits of new shale producers - forcing them out of business - and keeping prices higher over the longer term.

See if you could save by switching energy deals

Bills

The end result is that the prices on offer to the energy companies have more than halved since last summer. As we reported earlier this week, it's why in Europe prices have fallen 13%.

An investigation by the Daily Mail found that wholesale prices are back to roughly where they were five years ago. But the price we pay for that energy today is a long way off the level we faced five years ago. They calculated that assuming energy consumption was the same now as in April 2010, our average annual gas bill back then would be £489 - compared to £686 today - so we're overpaying by 40%. Clearly the price cuts that have been announced are a drop in the ocean.

The energy companies argue that they don't buy all of their energy at the current price, they negotiate deals based on average prices over a longer term. This protects them from price rises, but means they cannot be so quick to pass on cuts.

They add that aside from the wholesale price, they are paying more for things like network costs and environmental taxes. However, this is only part of the story. There's also the fact that the companies concerned are making more money. Ofgem says that in 2010 energy companies made £41 profit per household, while the Mail investigation calculated that this year they are making £89.

Gillian Guy, chief executive of Citizens Advice, points out that: "Energy bills are up a third since 2010, yet figures show wholesale costs at a four-year low. People are falling into arrears with rent and council tax debts as they struggle to make ends meet. "
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Petrol

A similar thing is happening at the pumps. Clearly prices are falling. Figures from the AA show that unleaded prices are down from almost £131p a litre in June to almost £107p. However, a proper reflection of the drop in wholesale prices would bring unleaded down to 91p per litre.

There are some mitigating factors, and a major one here is tax. This makes up around 75% of everything you pay for petrol, so makes a huge difference. Fuel duty has been frozen since 2011, but the figures include two years of massive hikes. Then of course there's the fact that VAT is charged on top of the duty - magnifying its effects.

The Mail investigation spoke to petrol retailers who insisted that these things were entirely responsible for the price difference, and that they were still only making 5p per litre. However, it's hard to see how this can be the case when we're paying 18% more for our petrol than we were the last time the wholesale price reached this level.

See if you could save by switching energy deals

Save yourself
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Guy emphasises that rather than being happy with "modest reductions" in our energy bills, we need to be hunting around for the best possible deal, so we can cut our own costs more dramatically. At the very least we should switch onto the cheapest tariff offered by our provider, but ideally we need to check the whole market and make more substantial savings by switching suppliers.

On the petrol front, there are savings you can make locally by searching for a cheaper deal. You mustn't drive around comparing prices - or go too far out of your way to get a better deal - but if you check your local area on petrolprices.co.uk you can find the cheapest possible fuel in your area.

None of this is enough to secure the kinds of savings that we could get if the suppliers cut their prices to 2010 levels - but it's a start. Moneysupermarket estimates that shopping around for energy could save bill payers £256 a year, which isn't quite the 40% we should be able to expect, but is far better than the 5% cuts being touted by the energy firms themselves.

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