Big six firms deny inflating prices to make extra profits from their own
plants or striking expensive deals to detriment of consumers
Rowena Mason, political correspondent
Households may have paid £150 over the odds for their electricity over the
past three years because energy companies bought their power for almost
£4bn more than the average market rate, Labour has claimed.
In a new analysis of official figures, the Labour party, which has pledged
to freeze prices for 20 months if it wins the general election in 2015,
said the big six energy suppliers appear either to be inflating their
prices to make extra profits for their own power plants, or striking very
expensive deals to the detriment of consumers.
Caroline Flint, the shadow energy secretary, said she could demonstrate
that the energy giants – which supply 98% of households in Britain – have
been buying electricity at a far higher price than they could get on the
open market. This amounts to about £50 a year per household for the last
three years for which data is available, she said.
“These figures reveal the full extent of the way consumers have been
overcharged for their electricity,” Flint said. “Energy companies always
blame wholesale costs when they put up bills, but it now looks like they
could have deliberately inflated prices to boost profits from their power
stations.
“The time has come for a complete overhaul of our energy market. Labour
will break up the big energy companies, put an end to the secret deals and
force them to do all of their trading on the open market.”
The party calculated its figures by comparing the price paid for
electricity by the energy giants – known as the weighted average cost of
fuel – with the average market price a year ahead provided to them by small
supplier First Utility.
In response, Energy UK, which represents the big six suppliers – SSE, E.ON,
EDF, npower, Scottish Power and British Gas – disputed Labour’s figures,
saying they were not comparable because they cover more than just the
wholesale cost of energy.
“It also covers losses, the energy element of reconciliation-by-difference
costs and balancing and shaping costs incurred by the supply,” a spokesman
said.
“The additional costs included in the weighted average cost of fuel make
them a totally different figure to the basic wholesale market price.
“It is also worth pointing out there isn’t a single ‘wholesale’ price.
Different companies buy at different times, from different people, for
different prices depending on demand, forecasts and a whole host of other
factors. These different business practices mean each energy company will
be paying a different amount for its wholesale energy.”
Labour said it did not believe these extra costs – which can be incurred
when a firm has to match the electricity it has bought with customer demand
– could account for the large price differential.
Flint said the public were fed up with hearing the “same old excuses” from
the energy industry.
MPs have long raised concerns about the potential for energy firms to
increase their profits by selling power from their own stations to their
retail arms, either directly or indirectly.
In evidence to MPs in November, all the firms denied selling power from
their own stations to their supply businesses at inflated prices and said
they only “self supply” a very small amount of electricity or none at all.
But Tim Yeo, the chairman of the energy select committee, has raised
concerns about the lack of transparency around the issue while another
committee member, Alan Whitehead, said in a hearing that all the big
companies buy some of their own electricity “in one way or another”.
One of the companies, E.ON, has suggested new restrictions on self-supply
to provide more clarity, including a “clear and consistent prohibition of
cross-subsidy between the generation and supply activities that are within
the same group”.
In 2011, Andrew Wright, then senior partner of markets at Ofgem, said there
was no concrete evidence but “it’s a sensible conclusion” that companies
are self-supplying given the lack of liquidity in the wholesale market.
To end any doubts over the issue, Labour wants to make sure the big six
formally separate their power stations and supply companies in a similar
way to the proposed ringfence for the banks.
The party’s analysis is likely to add to pressure on David Cameron to
address worries about Britain’s energy market, after Labour’s leader, Ed
Miliband, announced last year he would freeze prices for 20 months if he
becomes prime minister in 2015.
Cameron has dismissed Labour’s pledge as a gimmick that would drive
business away from Britain, depicting Miliband as wanting to live in a
“Marxist universe” and of resorting to a “petty socialist campaign”. He
also accused Miliband of helping to push up fuel bills during the last
government.
However, he was forced to respond to worries about the soaring cost of fuel
– now at a record high of more than £1,400 per household – as he pledged to
“roll back” green charges on bills.
The coalition announced it would remove levies costing each household about
£50, but not all consumers have yet seen the benefit of this cut in their
bills.
A £53 price cut by British Gas has taken effect this week, while EDF and
E.ON have limited their price rises. Yet SSE has only said it will cut
bills before the end of March, while the others – Scottish Power and npower
– have not said exactly when they will pass on the reductions.
Labour also pointed out that the efforts to roll back green tariffs came
after a round of price rises by the big six, meaning energy bills are still
higher this winter than last year.
An Ofgem spokesman said the regulator is already doing a huge amount to
reform the energy market that will make a big difference to customer bills.
From Thursday, Ofgem is banning suppliers from offering complex tariffs –
for example where consumers are initially charged a higher rate, which
falls the more they use. It will mean each supplier has just four tariffs
for gas and four for electricity for consumers to choose from.
“We’ve introduced the biggest reforms since competition began,” the
spokesman said.
The energy minister, Ed Davey, said Miliband’s pledge to freeze energy
prices for two years would not reduce household bills. He also said a UK
fracking boom was not the answer either, in an interview in the Independent.
He believes Britain must create an integrated power market across Europe in
order to benefit from lower energy prices, adding that a network of
European electricity interconnectors is needed.
“Literally in the last three or four years, there has been a complete
change in the differential between the North American price for gas and
energy and the EU price for gas and energy,” he said.
“That represents a strategic change in the terms of trade and is very
significant. The EU needs to respond to this very quickly.”
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