29th Oct 2013 16:34
LONDON (Alliance News) - Britain's biggest energy companies were at odds with smaller competitors Thursday as they tried to explain to angry UK lawmakers why they were blaming higher wholesale energy prices for recent customer price hikes.
Half of the big six UK energy suppliers have raised prices in recent weeks, with the rest expected to follow in coming weeks. They've blamed a combination of higher wholesale prices, rising costs for maintaining infrastructure, and the cost of the government's green energy taxes. RWE npower increased its prices an average of 10.4%, Centrica's British Gas an average of 9.2% and SSE increased prices an average of 8.2%.
The increases have prompted a storm of protest from consumer groups, and politicians of all parties. The protests were stoked when UK energy market regulator Ofgem said that wholesale prices have risen by less than the rate of inflation and that its data suggests that wholesale electricity and gas together have risen by just 1.7% over the last year.
But representatives of the big energy companies argued again that increased wholesale costs were partly to blame for price rises, with William Morris, the managing director of SSE, telling a committee of MPs that his firm had faced a 4% increase in wholesale costs over the last year.
Guy Johnson, the External Affairs Director of RWE nPower said his company's cost assumptions are forward looking, factoring in the risk of larger wholesale cost increases than Ofgem has put forward.
However, smaller players disagreed. Ovo Energy's Managing Director Stephen Fitzpatrick told the MPs that the most expensive price they've paid for wholesale gas was in 2011 when it was 74 pence a thermal unit. It is now down to 69 pence, he said.
"We don't see nearly the same impact [as the big six] on wholesale energy prices," Fitzpatrick said. "I can't explain any of these price rises."
Ovo energy is is a smaller energy supply company, which focuses heavily on renewable electricity, including a 100% renewable energy tariff.
Labour MP John Robertson said during the meeting that according to Ofgem, energy companies make 23% profit on generating electricity while their own figures suggest profits of between 17-23%. Yet these profits are not taken into account by their retail arms when companies raise consumers' bills.
"How can these profits be fair when people cannot afford to pay for their energy?" another Labour MP, Ian Lavery, said.
Energy prices are turning into a political football ahead of the next election. Dwindling household budgets are set to become one of the main features of part campaigns as wage growth remains low while things like energy prices increase at rates well above inflation.
Opposition leader Ed Miliband has said Labour will freeze energy prices for two years if it is elected to power in 2015, prompting energy companies to warn that they may not be able to fund investments and warnings from critics who say companies may raise prices even more ahead of any freeze.
UK Prime Minster David Cameron, meanwhile, last week announced a review of green energy taxes after admitting they have contributed to recent increases in the average energy bill. The prime minister told MPs that household bills have been pushed up to "unacceptable" levels and he wants to cut back environmental regulations and charges which he said the last Labour government allowed to get out of control.
Cameron also announced a new competition test for suppliers in order to limit any unacceptable levels of profits and make the market more fair for the consumer.
By Tom McIvor; [email protected]; @TomMcIvor1
Copyright 2013 Alliance News Limited. All Rights Reserved.
Related Shares:
CentricaSSE