Coalition turns down heat under energy suppliers

Martin Hickman,Consumer Affairs Correspondent
Wednesday 18 August 2010 17:56 BST

The Coalition Government has shelved plans for an independent inquiry into the £25bn-a-year energy industry amid accusations of profiteering on electricity and gas.

Before the general election, the Conservatives and the Liberal Democrats repeatedly criticised Labour for failing to tackle prices charged by the Big Six suppliers. Both the opposition parties demanded an inquiry by the Competition Commission.

An inquiry would have the power to reform the industry, encourage new entrants to break the hold of players such as British Gas and EDF on 99 per cent of the market and, potentially, impose price caps.

However four months into the Coalition Government, no inquiry has been called and the Department of Energy and Climate Change confirmed last night that it has no plans to refer the industry to the Competition Commission.

The news comes amid the possibility that the Coalition will reduce the Winter Fuel Payment for older people, worth £250 per household, or £400 where at least one partner is 80 years old.

With annual bills over £1,000, social problems caused by high energy prices have escalated.

Homes in fuel poverty – defined as spending 10 per cent or more of their income on fuel – have trebled in five years to around 6.6 million. Figures released in December showed that during the cold winter of 2008/09, “excess winter mortality” jumped by 49 per cent to 36,700, sending an extra 10,000 pensioners to early graves.

Meanwhile, profits have surged at the Big Six – British Gas, EDF, Eon, Npower, Scottish & Southern and Scottish Power – and the firms are accused of failing to pass on significant falls in wholesale prices.

Of the two British-owned companies, Scottish & Southern revealed in July that full-year operating profits at its supply and generation arm, of which its UK residential business is a small part, rose by £64m to £896m, up 8 per cent.

In July, British Gas, whose residential supply forms the main part of its business, reported operating profits in the first half of 2010 of £585m, up 98 per cent.

Prior to the election, the Conservatives’ shadow Energy and Climate Change Secretary, Greg Clark, repeatedly called for a Competition Commission investigation into claims of profiteering.

In October, he said: “Even the Government’s own watchdog, Consumer Focus, has said that every household is paying £96 a year too much. The Government should cut through the confusion and end it once and for all by a swift, forensic reference to the Competition Commission.”

The Department of Energy and Climate Change (DECC) , run by the Liberal Democrats’ Chris Huhne, is reviewing the electricity market and the role of the regulator Ofgem, which has been criticised for responding too slowly to previous confirmed overcharging.

DECC confirmed there would be “no referral to the CC at present”.

It said:“Ofgem monitor[s] the market closely, reporting regularly on gas and electricity supply margins, and are also separately investigating liquidity and competition in wholesale markets.”

Consumer groups condemned the failure to act, saying customers needed a thorough investigation of the industry, whose numbers of major suppliers has shrunk through takeovers and mergers from 20 at privatisation in the early 1990s to 6 now.

The Independent’s Campaign against the Great Energy Rip-off has warned that suppliers are overcharging and called for action to ensure that cuts in wholesale prices result in lower bills.

Then, Consumer Focus estimated bills were £96 a year too high, while an independent energy expert put the figure at £120.

Since October the firms have cut average monthly direct debit bills by £55 to £1,095 a year.

Energy UK, which represents the Big Six, denied the industry was uncompetitive. Peter Jenkins, its head of communications, said.“The energy regulator, Ofgem, has confirmed on a number of occasions that Britain has one of the most competitive energy markets in the world where around five million customers switch supplier each year.

“Since the launch of the Independent’s campaign customers have seen further reductions in their energy bills. Customers have the cheapest gas and amongst the cheapest electricity in the EU15."

EU statistics show that before tax UK energy prices are average for Europe. Britain has large gas reserves and the industry is fully privatised, compared with state-owned suppliers in many European countries.

Consumer Focus’ energy expert Audrey Gallacher, said: “There are long-standing concerns that the energy market is not working properly and that customers are getting a raw deal as a result.

“The fundamental problems have not changed since Competition Commission calls were backed by Conservative and Liberal Democrat MPs before the election.

“We firmly believe that this market needs to be subject to independent scrutiny.”

Mr Grogan, now retired, said: “As the winter approaches and there is a debate over energy companies and their profits - as there has been for the past five years - I think the pressure will grow for the Coalition to make their position clear.

“Before the election everyone would have been under the impression that they would be making a referral to the Competition Commission. It looks like officials in the department or Ofgem have got to them.”

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