Labour accuses UK's energy firms of overcharging scam

LONDON Thu Jan 2, 2014 1:57pm GMT

A British Gas van is seen parked outside a home in Loughborough, central England October 17, 2013. REUTERS/Darren Staples

A British Gas van is seen parked outside a home in Loughborough, central England October 17, 2013.

Credit: Reuters/Darren Staples

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LONDON (Reuters) - Britain's opposition Labour party accused the country's big six energy suppliers of overcharging consumers by almost 4 billion pounds as it sought to keep living standards at the heart of the political debate before a parliamentary election next year.

Labour, which is ahead of Prime Minister David Cameron's Conservative party in opinion polls by around 6 points, dominated the agenda towards the end of last year with a popular promise to freeze energy prices for 20 months if elected.

Though the economy is staging a strong recovery after years of stagnating, inflation, while falling, has outstripped wages meaning many voters have yet to feel the upturn's benefits, an anomaly that Labour has used to criticise Cameron's party.

The big six energy firms - British Gas-owner Centrica, SSE, RWE's npower, Iberdrola's Scottish Power, E.ON and EDF Energy - supply 98 percent of homes. They angered the public by unveiling above inflation price rises at the end of last year.

On Thursday, Labour said its analysis of comparative energy market price data suggested that the six companies had overcharged consumers to the tune of over 3.8 billion pounds in the past three years by artificially inflating the cost of wholesale power that they purchased from power stations.

That amounted to households being overcharged by, on average, nearly 48 pounds each year, Labour said.

"These figures reveal the full extent of the way consumers have been overcharged for their electricity," Caroline Flint, Labour's energy spokeswoman, said in a statement.

"Energy companies always blame wholesale costs when they put up bills, but it now looks like they've deliberately inflated prices to boost profits from their power stations."

Labour reached its conclusion by comparing the price paid for electricity by the energy giants with the average market price a year ahead provided to them by First Utility, Britain's biggest independent energy supplier.

COMPETITIVE PRICE

Ofgem, the market regulator, had serious questions to answer about why it had failed to monitor the way in which companies had bought electricity from themselves and why it had allowed them to overcharge their customers, Labour said.

However, Ian Marlee, a senior partner for Ofgem, said the regulator was unable to test Labour's allegations due to a lack of market transparency.

"What we identified in our work was that actually there is not enough transparency to be able to actually look at that," he told BBC radio when asked about the allegations.

Ofgem was trying to make the market less opaque, he added. Labour said his answer was "just not good enough".

Energy UK, which represents the big six, suggested Labour's comparison was flawed because the figures it used were not directly comparable and wholesale prices included much more than just the cost of energy.

"Energy suppliers pay the most competitive price they can for the gas and electricity they purchase," it said.

"The overall costs of wholesale energy ... include a number of costs so are not purely market prices. Also, as suppliers buy their energy ahead so its there when customers want and need it, averages in this area don't give the true picture."

The energy industry would be providing clearer explanations about pricing in the year ahead, it added.

Cameron, who has dismissed Labour's energy promises as populist and unworkable, has promised to cut rising energy costs by transferring the cost of helping poor families with energy prices from household bills to general taxation.

He has also pledged that the cost of a scheme to subsidise the insulation of houses - also included in household energy bills - will be spread over a longer period to bring down its cost.

(Editing by Alison Williams)

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