Why haven’t falling oil and gas prices led to lower energy bills?

Oireachtas committee chairman wants to hear from regulator and companies

Energy companies say they buy from wholesales in advance, so global oil prices do not have an immediate affect on domestic bills. Photograph: Bloomberg

Energy companies say they buy from wholesales in advance, so global oil prices do not have an immediate affect on domestic bills. Photograph: Bloomberg

 

The chairman of the Oireachtas Transport and Communication Committee has said he wants an explanation for why reductions in global oil and gas prices are not being passed on to electricity and gas customers.

Fine Gael TD John O’Mahony said petrol and diesel prices have fallen at the pumps but energy bills have remained the same. “Oil and gas are available at cheaper rates than in the past,” he said. “We need to know why these savings are not being passed on to customers.”

This week the price of a barrel of Brent crude oil dipped to about $47 (€40), a new six-year low. Last summer the price of Brent crude stood at more than twice its current value.

Mr O’Mahony said he would raise the matter at the Oireachtas committee, adding that he would like the energy regulator and energy companies to explain their position.

“Over the years we have seen our energy bills increase in direct response to increases in global oil and gas prices,” he said.

“By this logic, our bills should come down when the price of oil decreases as it has significantly in recent months. However, up to this point there has been no reduction. I believe the energy regulator and energy companies need to explain to the Committee why these savings are not being passed on.”

In response, the Commission for Energy Regulation said about 50 per cent of a final average electricity bill relates to wholesale electricity prices, so only about half of a residential customer’s bill is affected by changes to global fuel prices.

A spokesman for the regulator said the cost of natural gas, rather than the cost of oil, has the main impact on wholesale electricity prices in Ireland.

“It would be expected that the recent decline in natural gas prices, rather than decline in oil prices, would be reflected in a decline in wholesale electricity prices, as it has been,” he said.

Natural gas prices in Ireland are set by the price of gas in the British market. Compared with December 2013, these prices have fallen by about 18 per cent in the last year in euro terms, the regulator said.

The spokesman added that previous increases and decreases in gas and wholesale electricity prices have led directly to increases and decreases in domestic energy bills, with a lag of a number of months because of forward hedging by suppliers.

The comments from the regulator chime with the companies’ positions.

Electric Ireland, formerly ESB, said it purchases its energy on the wholesale markets well in advance, sometimes up to three years, to ensure security of supply and smooth out price volatility. Therefore, “movements in wholesale prices do not feed through immediately to retail tariff prices”.

Bord Gáis Energy said it is “constantly” reviewing its pricing. “We have been closely monitoring the movements in wholesale energy markets, and we are actively reviewing our pricing at the moment.”

SSE Airtricity said it keeps a close eye on the costs involved with supplying energy – not just the wholesale cost. “Wholesale prices are volatile and go up as well as down, so we buy energy over periods of time to flatten this out and protect customers for the long term,” a spokesman said.