Regulator orders pension review of energy firms

Unions angry over investigation into the amount customers are charged to fund workers' retirement

Ofgem, the energy regulator, has asked government statisticians to review the pension liabilities of some of the country's biggest gas and electricity companies, in a move that has infuriated unions.

The Government Actuary's Department (GAD) will produce a report into the efficiency of the funding of pension funds of electricity and gas distributors and transmission companies by March.

Electricity distributors alone, including EdF-owned Seeboard in the South-east and United Utilities-owned Norweb in the North-west, are allowed to charge £1.65bn on customer bills to cover their pension deficit and administration costs. This is part of the five-year funding plan that was agreed in January.

The review will decide whether or not the pension funds have been run well enough to justify the funding. An Ofgem spokesman hinted that should pensions have been found to have been administered poorly, creating shortfalls that increase customer charges, a more serious reassessment of pension funding could take place. He added: "We have asked GAD to conduct an initial efficiency review, which could trigger a wider, more comprehensive review of pensions."

The GMB union believes that the review could be a prelude to cutting its members' pensions. Gary Smith, the national secretary for energy, even questioned whether the review was politically motivated.

"The reason Ofgem is doing this review now is that there is a change of government and they believe that they will get more traction [for pension reform] with this coalition," said Mr Smith. The union has claimed that the review is both unnecessarily costly and bureaucratic.

In a recent Parliamentary answer, the Energy minister, Charles Hendry, said that the review would cost £30,000 and will be financed by Ofgem, which will also bear the cost of any further review. Mr Hendry argued that GAD's appointment was vital "to ensure that consumers only fund efficiently incurred pension costs".

The GMB argues that GAD would duplicate previous work, as the schemes are subject to independent three-yearly actuarial checks and are overseen by the Pensions Regulator. There is also the regular check on the funds from the pension trustees. "The public don't expect the pensions regulator to regulate their energy supply so why should Ofgem meddle in pension schemes?" it said.

However, the public and Government have grown more concerned about energy price hikes during a time of tightening belts. Scottish & Southern Energy and British Gas raised prices this month, while 2.5 million Scottish Energy customers have seen an extra £52 added to the average combined electricity and gas bill, which is now £1,357.

Last month, Phil Bentley, the British Gas boss, blamed the increase on a 25 per cent increase in the wholesale gas markets, which caused consternation in the tabloids given that it announced a record profit of £585m in the first half of the year.

Unions have been particularly active in the energy sector recently. National Grid faces industrial action by nearly a quarter of its workforce in January, with union members angered over a 7.2 per cent pay deal over three years.