Utilities must cut prices in early 2010

Britain's six big energy suppliers must cut their power and gas prices early next year and should not use their need to invest as an excuse to overcharge customers, energy regulator Ofgem said on Monday.

LONDON (Reuters) - Britain's six big energy suppliers must cut their power and gas prices early next year and should not use their need to invest as an excuse to overcharge customers, energy regulator Ofgem said on Monday.

Britain's biggest utilities have trimmed energy bills only modestly after a slump in wholesale prices this year, arguing that they shielded their customers from a big surge in wholesale prices before the economic crisis.

The companies have also pointed to the hundreds of billions of pounds in investments they need to make over the next decade partly to develop wind and nuclear power.

Ofgem has until now accepted the utilities' argument that, to smooth out price changes for consumers, they absorb months of wholesale price rises as well as falls before passing some of them on.

But calls for bigger cuts in energy bills have grown this year, as wholesale prices have remained low going into winter, and the regulator is losing patience.

"Ofgem's role is to ensure that companies can invest, but do not use investment as a shameful excuse to overcharge consumers," Ofgem chief executive, Alistair Buchanan said in a statement.

"At the moment, the effect of companies smoothing prices has been neutral on consumers, but if prices stay unchanged in the New Year, then we will see customers losing out."

Its analysis showed the net profit margins of the big six utilities were pulling out of their loss making pattern of the last few years, just at a time when a big rise in investment is needed to secure supplies and fight climate change.

Ofgem said in October that UK consumers could see their energy bills rise by up to a quarter over the next 10 years to pay for 200 billion pounds needed to secure supplies and meet climate change targets.

Ofgem was looking into whether Britain's current market arrangements could deliver the investment needed for secure and sustainable energy supplies at a price consumers can afford.

It would publish its conclusions as well as a new investigation into the generating market and further analysis on retail prices next year.

"We will not shy away from proposing radical reform to protect the interests of consumers," Buchanan said.

The six companies are British Gas (CNA.L), EDF Energy (EDF.PA), E.ON UK (EONGn.DE), RWE npower (RWEG.DE), Scottish and Southern Energy plc (SSE.L) and Scottishpower, a unit of Spain's Iberdrola (IBE.MC).

No major utilities have cut energy prices since the first half of the year, except for E.ON which cut prices in July, despite low gas and power wholesale prices so far this year.

The first round of price cuts took place during the first half of the year after the utilities announced two bill increases for both gas and electricity last year, blaming soaring wholesale energy prices in late 2007 and early 2008.