Energy bosses blame politicians for price rises

LONDON Tue Oct 29, 2013 6:59pm GMT

An electricity cable is plugged into the mains at a home in southern England January 6, 2008. REUTERS/Luke MacGregor

An electricity cable is plugged into the mains at a home in southern England January 6, 2008.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - The six energy companies that dominate Britain's energy market defended steep price hikes on Tuesday, blaming rising costs and political interference as a panel of lawmakers accused them of abusing their market position at consumers' expense.

Lawmakers summoned energy executives after four of Britain's "big six" energy suppliers raised charges for heating homes by more than three times the rate of inflation, stirring a political debate about the cost of living and angering voters on the eve of winter.

"It's the hardest decision that we take and for us the recovery of costs within that was the key reason," said Neil Clitheroe of Scottish Power which, on October 24, raised prices by 8.6 percent.

Unlike most of Europe, where one or two often state-owned companies dominate power markets and where regulated tariffs were the norm in 17 out of 27 EU countries in 2012, the British market has six major players, which freely set prices.

The issue of rising energy bills has dominated the political agenda since opposition Labour leader Ed Miliband promised to freeze energy bills for 20 months if he wins power in a 2015 election. Political parties are competing with one another to be seen to be tough on what they say are unfair price rises.

On Tuesday, in front of a packed parliamentary committee room, energy firms blamed wholesale prices, the cost of using the national grid, and levies linked to government programmes, brushing off allegations they were rigging the market.

Tony Cocker, UK chief executive at E.ON, said that Labour's promise to freeze prices had pushed up the cost of raising capital for investment and had increased customers' long-term gas and electricity costs.

Miliband dismissed the evidence from the energy bosses as a "list of excuses."

Together, the "big six" firms control 99 percent of the retail energy market. They are RWE nPower, Scottish Power, a unit of Spain's Iberdrola, EDF Energy, Centrica, SSE and E.ON.

The Thomson Reuters UK index utilities index shows British firms have prospered since 2008 when compared to those in Europe, where firms have lost out to heavily subsidised renewable energy sources.

GREEN TAXES

The political row has fanned a wider cost-of-living debate as price rises on everything from utility bills to train tickets have outpaced stagnant wages. Britons believe energy prices are the biggest threat to the UK economy, polls show.

Prime Minister David Cameron, seeking to win back the political initiative on energy policy from Labour, said last week he wanted to "roll back" environmental taxes that bump up energy bills, promising more details on December 4.

The cost to companies of complying with a number of government policies, such as the Energy Company Obligation which helps improve the energy efficiency of homes, has risen 10-fold in ten years, according to Ofgem.

Energy bosses supported shifting the burden of such schemes off customers' bills and funding some of the programmes through general taxation - a move they promised would bring bills down immediately.

"If the government responds to our request to put this in the general taxation then pound for pound, penny for penny that should come straight off the customers bill. We'd do it as fast as possible," said SSE managing director William Morris.

Opening up Britain's energy market to competition has not kept prices down as much as regulators had hoped and lawmakers on Tuesday repeatedly accused the energy bosses of acting in concert over price hikes.

Ramsay Dunning, Group Manager at Co-operative Energy, one of Britain's smallest energy suppliers, told the committee that potential competitors were being deterred from entering the industry by the current structure.

"As an industry we have a problem. From the outside ... it looks a bit like a cartel," he said, adding that he had not experienced collusion between the big firms. "I am not asking for the break-up of the big six but I am saying that actually we need to do something to change that appearance."

Energy prices have already risen 24 percent in the past four years, according to regulator Ofgem, although European data shows British households pay lower prices on average than in the rest of Europe.

($1 = 0.6199 British pounds)

(Additional reporting by Karolin Schaps, Geert De Clercq and Christine Murray; Editing by Andrew Osborn and Robin Pomeroy)

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