Electricity firms warn price cuts will hit jobs

ELECTRICITY SUPPLIERS and unions joined forces yesterday to warn of heavy job losses across the industry following new price curbs announced by the energy regulator, Callum McCarthy.

The AEEU engineering union claimed the pounds 15 reduction in average household bills next year could result in as many as 10,000 redundancies. However, the public service union Unison put the figure at a more modest 2,000 to 3,000 job losses.

The Electricity Association, representing the country's 14 public electricity suppliers, also warned of the threat posed to jobs and security of supply adding it wanted to avoid a trade-off between cost savings and reliability. The instant reaction in the markets was one of relief that the regulator had backed down from draft plans announced in October to reduce average bills by as much as pounds 25, or 10 per cent. However, after an initial surge in share prices, stocks fell back and some electricity companies ended the day down as analysts concluded that the price curbs were still very demanding.

The marked difference between Mr McCarthy's draft price curbs in October and the final reductions announced yesterday is that he has decided to place more reliance on competition bringing electricity bills down.

However, in the key area of distribution charges - the amount companies levy for use of their local wires monopolies - he has barely shifted at all. Distribution charges, which make up just over a quarter of the average bill will have to come down by 24 per cent next year - equivalent to a reduction in income of pounds 650m.

In addition the regulator has re-allocated pounds 300m of costs from distribution to supply, where there is now a competitive market, giving companies little scope to pass on the costs to customers.

Mr McCarhty said: "I have been tough on companies where they have a monopoly and I have established a safety net in supply where I expect competition to be the real driver of prices."

He added that had he stuck by his initial plans for a much bigger cut in supply charges, it would have limited the scope for companies to undercut one another while customer inertia would have reduced the number of households switching supplier.

David Porter, director of policy at the EA, said the deep cost cuts represented "a tough challenge for the industry", which could jeopardise both jobs and future investment.

Companies have until 20 December to decide whether to accept the new price curbs or appeal to the Competition Commission. Only Scottish & Southern, which has escaped with price cuts of pounds 7-pounds 8, saw its share price end the day strongly up.

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