UK's Labour takes on utilities with price freeze plan

BRIGHTON, England/LONDON Tue Sep 24, 2013 7:12pm BST

1 of 5. Britain's opposition Labour party leader Ed Miliband delivers his speech at the annual Labour party conference in Brighton, southern England September 24, 2013.

Credit: Reuters/Stefan Wermuth

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BRIGHTON, England/LONDON (Reuters) - Britain's Labour party pledged on Tuesday to freeze gas and electricity prices for 20 months if it wins power in 2015, shifting $7.2 billion in costs onto energy companies, which opponents said could lead to power blackouts.

Seeking to convince voters he can improve their standard of living, Labour leader Ed Miliband said energy companies had been overcharging consumers for too long and that he would freeze prices if he won the May 2015 election.

"The companies aren't going to like this, because it will cost them more," Miliband said to cheers from activists at Labour's annual conference in Brighton. "It will benefit millions of families and millions of businesses."

Though likely to be popular with voters, the plan places Labour on a collision course with the energy companies. A Labour source close to Miliband said it could cost energy suppliers 4.5 billion pounds ($7.2 billion).

The majority of polls show Labour is on track to win the 2015 election, though its lead over David Cameron's Conservative party has narrowed in recent months as Britain recovers from a deep and prolonged recession.

The Labour source said the long-term aim of the price freeze was to buy time for a future Labour government to set up a more powerful regulator with the ability to force companies to lower bills if energy prices fall in the wholesale market.

Labour's energy spokeswoman, Caroline Flint, said the party would force companies to split up their energy generation and their consumer sales businesses and require all electricity to be pooled and traded on the open market.

Britain is Europe's largest gas consumer and has one of the top three traded electricity markets in Europe.

TURN OUT THE LIGHTS?

A senior member of the ruling Conservative and Liberal Democrat coalition, Labour's opponents, said the plan to freeze prices could lead to blackouts, such as those that followed a 2001 freeze in California.

"When they tried to fix prices in California, it resulted in an electricity crisis and widespread blackouts. We can't risk the lights going out here too," Energy Secretary Ed Davey said.

The British retail market is dominated by six major utilities that cover around 99 percent of the market: Centrica, SSE, Scottish Power, EDF Energy, RWE npower and E.ON.

"That's an absolutely massive cost for the industry to bear ... it would be quite devastating clearly for these companies' earnings," UBS analyst Stephen Hunt said.

Of the two main London-listed energy companies, share prices in Centrica dipped slightly, while SSE's did not move.

"Instead of price freezes, which will lead to unsustainable loss-making retail businesses, the Labour Party should put policy costs into general taxation, taking them off energy bills," SSE said in a statement.

The utility said that payments towards government programmes to encourage renewable power and energy efficiency account for half of the typical gas and power bill in Britain.

RWE npower said a price freeze was possible only if the government was prepared to accept a halt in infrastructure investment and could stop commodity costs from rising.

E.ON said its tariffs already provided customers with the opportunity to fix their costs. EDF and Centrica declined to comment, while Scottish Power could not be reached for comment.

Britain's energy lobby said Miliband's plan would deter investment into a sector, which they say needs to attract 110 billion pounds over the next decade to modernise and replace ageing power plants and infrastructure.

"Freezing the bill may be superficially attractive, but it will also freeze the money to build and renew power stations, freeze the jobs ... and make the prospect of energy shortages a reality, pushing up prices for everyone," said Angela Knight, chief executive at lobby EnergyUK.

(Additional reporting by Sarah Young; Editing by Kate Holton and Jane Baird)

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