Leading article: The energy giants must be brought into line

But we must face up to the inevitability of higher prices in the long term
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The Independent Online

It tells us something about how inured we have become to the various sharp practices of the energy conglomerates, that the news of British Gas reducing the bills of three quarters of its customers by 10 per cent was greeted in some quarters with a sense of grateful relief.

The wholesale price of gas has fallen by almost 50 per cent since last summer. That means the price that British Gas is paying to the various North Sea, Russian and Algerian producers has come down dramatically. Of course the price that energy suppliers charge us should fall too; and probably by rather more than 10 per cent.

It has been well documented that the six big UK energy companies are much quicker to pass on increases in the wholesale price of gas than they are reductions. The theory behind the privatisation of the UK energy sector a decade ago was that the establishment of competing providers would provide an incentive for firms to provide the lowest possible price to customers. But the market has not developed like that. It is true that households have the right to change suppliers and shop for the lowest price, but less than a fifth of them have exercised this right.

The effect has been to deliver an effective monopoly into the hands of a small number of firms. If the rest of the sector fails to follow British Gas and bring down energy prices in line with the fall in the wholesale price, the competition authorities will have no choice but to step in. In truth, they should probably have done so already. The sector's record of ripping off customers who use prepayment meters and those who are not on the gas grid provides them with ample justification to start an investigation.

And yet we cannot ignore the reality that, in the longer term, there is only one direction energy prices can go, no matter how competitive the domestic supply sector is; and that direction is up. Two powerful forces are in operation here. The first is natural scarcity. Fossil fuels are a finite resource. As their stocks dwindle around the world, as they inevitably will, the price will go up.

The second force is climate change. As the evidence of the environmental cost of burning fossil fuels for energy mounts, so does the pressure on governments around the world to impose caps and taxes on carbon-intensive energy production. Over time, such measures will encourage the development of clean and renewable sources of energy, and that should mitigate the effects of global warming to the immense benefit of the entire planet. But in the meantime, it will also mean higher energy prices for customers.

Higher energy prices, in themselves, are not entirely malign. They encourage society to conserve energy, making our homes better insulated and discouraging us from wasting it. But the social costs cannot be ignored. Poor pensioners and low-income families, whose demand for energy can only be squeezed so far, will be hit. We are already seeing this effect to some extent now. An increase in targeted benefits, such as the Government's existing winter fuel allowance, is clearly going to be necessary to cushion the transition to cleaner fuel technologies and energy sources.

The energy conglomerates need to be brought into line. The merest hint of profiteering needs to be stamped out. But at the same time it is beholden on all of us to keep our eyes on the still greater prize ahead: environmentally sustainable energy production. To achieve that, almost any price is worth paying.