Energy Price Reductions

Claims are being reported in the press that large price reductions in energy are to be expected next year (by up to 30%). The combination of gas and electricity could see a drop in the annual outlay of up to £400. The first part (15%) is expected in the New Year with a further reduction of 15% in the summer. Since January 2008, the duel energy bill has risen from an average of £900 to £1300 (+£400).

The proposed figure for the overall reduction is...

...interesting

Energy prices have plunged over the past 6-months and these reductions are morally expected to be passed on to consumers. It's inevitable as any justification, however specious, for massive rises evaporates. The volatility of price fluctuation is exposed by the summer high (2008) of $147 a barrel and less than $100 (December 2007).

The real test will be whether any price reduction actually happens. If it does then this should only be expected, but if it doesn't then the charge of profiteering would be difficult, if not impossible, to defend. Shareholders' profits will be reduced if the moral reduction of prices is passed on. Otherwise it becomes a simple case of taking money under false pretenses, unless there is a quality case for imposing a high charge, and is then tantamount to theft.

Any argument that includes repayment of an overestimated charge has absolutely no foundation as any interest on the predictable overcharging would not happen. The energy company would profit by accruing interest on the growing balance of its account, but not pass it on when the overcharge amount is returned.

It's child's play accounting.

Ofgem has claimed it would consider "naming and shaming" those companies that fail to pass on wholesale price cuts. It is very likely however, that any price reduction would take a very long time to drip into a customer's account. It would mean diverting profits away from the shareholders and back to the consumers who partly fund those profits.

The main predictable event is that oil production will be drastically cut back. OPEC has already announced a cut by 2.2 million barrels per day. This is the mechanism for price massage and control: cause a glut and prices drop so create a shortage and see those prices escalate. And since gas and oil prices have been linked (for no justifiable reason) the inevitable becomes entirely predictable.

A cynical comment from British Gas:

• "We are committed to passing savings on to customers wherever we can. While wholesale gas prices are still high, they are falling. If that continues we are hopeful that we will be able to reduce energy prices for our customers next spring."

...hopeful...?

...will be able...?

So, why should it be only a possibility should prices go downwards?