Energy bosses warn of soaring bills

Deputy Business Editor,David Prosser
Wednesday 25 June 2008 00:00

The bosses of Europe's largest energy companies lined up yesterday to warn British consumers that soaring gas and electricity bills are now inevitable in the second half of this year.

Britain's six biggest gas and electricity suppliers presented a united front giving evidence to the Business and Enterprise Select Committee, rejecting MPs' criticisms of their profits and warning prices could rise by as much as 40 per cent by the end of the year.

Sam Laidlaw, the chief executive of Centrica, the owner of the country's largest supplier, British Gas, said: "It is clear that, at some point in the future, gas prices will have to move up."

Ian Marchant, chief executive of Scottish & Southern Energy, added: "Prices will have to go up significantly." Dr Paul Dolby, chief executive of E.ON, warned: "We are seeing a seismic shift in commodity prices – it's not difficult to see that the pressure is upwards."

Rupert Steele, director of regulation at ScottishPower, which is owned by the Spanish giant Iberdrola, said MPs' suggestion that the average household would see an extra £400 increase in gas and electricity bills – roughly 40 per cent – was likely to prove broadly accurate. "It is easy to see how you get to [those] figures," he said.

The energy companies were quizzed by MPs as part of the committee's inquiry into competition in the British market, which follows complaints from consumer groups that customers are victims of a cartel. Ofgem, the energy regulator, is also investigating accusations new entrants are prevented from competing by long-term supply contracts drawn up by Europe's "big six".

Graham Paul, sales director of Electricity4Business, one small provider that has been trying to break into the market, said his business was thwarted by the advantage large companies had as both generators of power and retail providers. "This effectively sees the largest energy companies in Britain wielding an unprecedented level of control over the market as producers as well as retailers."

Vincent de Rivaz, chief executive of EDF Energy, said that, while leading providers did not collude on price, the European wholesale gas market did need to be overhauled. "The market can be improved," he said.

One particular difficulty for UK consumers is that the British wholesale gas market is much more open than its equivalent in continental Europe, where prices are more closely linked to the cost of oil. As a result, French and German companies have recently been buying British gas, which is cheaper than continental supplies.

The MPs also pointed out more storage facilities have been built in continental Europe, enabling suppliers to build larger stockpiles, though the energy companies said planning laws had prevented similar initiatives here.

However, Mr Laidlaw claimed competition in the UK was working well, and rejected descriptions of leading energy companies as "fat cats". He said: "Our absolute price levels are currently the lowest in Europe."

Nevertheless, Mike Weir, one of the MPs on the committee, accused the Government and the energy industry of passing the buck. "Government says it is powerless, and prices are due to global markets, while the energy companies say they have to pass on increasing costs," he said.

Energy analysts also warned that at the current level of wholesale gas prices, bill increases would not be confined to this year alone.

"Although wholesale gas prices appear to have stabilised over the past week, they are still higher than they were three weeks ago and 83 per cent up since the beginning of 2008," said Joe Malinowski, managing director of The Energy Shop, the analyst which was the first earlier this year to predict a 40 per cent increase in bills during 2008.

"To restore the balance between wholesale and retail prices, retail gas bills will now need to rise by almost 50 per cent and retail electricity bills by almost 30 per cent over the next 12 months."

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