How much does the current cost of energy affect what consumers pay decades down the road? Probably more than you think. One need only compare an energy bill from today with one from a decade ago, adjusted for inflation, to see that the retail cost of energy never really goes down. This ‘energy axiom’ is now at the centre of a debate between UK power companies and the government.

Energy secretary Ed Davey recently challenged British Gas to reveal detailed information explaining a recent decision to increase retail energy bills by some £120 per annum. Davey insinuated that the Big Six energy companies are not being forthright by demanding they explain their ‘real reasons’ for raising retail energy rates.

British Gas managing director Ian Peters has defended his company by explaining that nearly 85% of the average utility bill is made up of things the power companies have no control of: the wholesale cost of electricity, regulatory costs, and green taxes. All three are things controlled primarily by the government.

Green Taxes

According to the DECC, government climate change policies add an additional £112 to the average consumer utility bill. If applied to the £120 increase announced by British Gas, the government portion is about 93% of it. When you add in the rising cost of wholesale power, £120 seems right in line with what the utility companies are claiming.

The government agrees that their policies will add about 7.5% to the retail cost of electricity by 2020. However, they also claim climate change policies will result in everyone consuming less electricity in the future, thereby bringing annual utility bills down by as much as 11%. Unfortunately, that's not likely to happen. In order for the government to achieve such rosy results, there would have to be nothing else that negatively affects the market between now and then. That's just not reality.

At the end of the day, there's no denying that both the energy companies and the government are equally responsible for a rise in energy prices. Those prices are not likely to go down in the future. They haven't in the past so why would we realistically expect them to in the future. Once prices are set it is nearly impossible to reverse them.