8th May 2015 09:21
LONDON (Alliance News) - The UK listed companies from the 'Big Six' energy firms in the UK saw their shares rise Friday morning after UK election results suggested the Conservative party are set to win an outright majority, putting fears about Labour's proposed energy market reforms aside.
The 'Big Six' energy firms include EDF Energy, E.On, nPower, SSE PLC, Scottish Power Ltd, which is part of the Iberdola Group and British Gas, which is part of Centrica PLC.
SSE shares were up 4.4% to 1,634.00 pence on Friday morning whilst Centrica shares rose by 6.7% to 274.73 pence. Drax Group PLC, owner of the Drax power station, also saw shares rise by 5.4% to 420.00 pence.
Back in March, Labour leader Ed Miliband detailed the party's proposed legislation for the "broken" energy, committing to a two-year price freeze and additionally saying it would empower the energy regulator to force price cuts and would require energy companies to separate out their generation units if his party won the election.
Labour also wanted the Big Six specifically to "open up their books", adding they would have to sell their electricity through an open exchange.
Labour originally committed to freezing prices in August 2014 - allowing them to fall but not rise - until 2017, promising it would be one of the first put before a new parliament if Labour managed to get into Downing Street.
The BBC had reported that Labour was aiming to reduce energy prices by 10% in the first year of government if elected.
Labour wanted to "reset the market" by forcing energy companies to separate out the parts of the business that generate energy from the parts that sell to homes and businesses and attacked the Big Six firms for cutting gas bills by only 1% to 5% over the last year whilst claiming wholesale gas prices had fallen by 20% in the same period.
That was backed up by the market regulator Ofgem, which Labour said had "failed to take decisive action to protect consumers", which advised in January that large energy providers were set to experience a small increase in profits during 2015, because future wholesale gas prices have fallen by more than the cuts made by the companies to household bills.
Energy UK, the trade association of the energy market which includes the Big Six energy firms, disagreed with the claims made by Ofgem, calling them "wildly exaggerated," whilst it called Labour's proposals unnecessary.
On the flip side, the Conservative and Liberal Democrat coalition launched the "Power To Switch" campaign in February which led to substantial rises in the amount of people switching energy provider in the UK, with more than an extra 100,000 people switching in the first month alone.
The coalition said in February it had reformed the market by halving switching times, encouraging new suppliers into the market, which brought the total number of independent suppliers to 20, and working with the UK gas and electricity regulator Ofgem to make energy bills clearer for customers, it claimed.
February was also the first month when energy suppliers, including the Big Six firms, began to introduce cheaper tariffs, apart from SSE who introduced price cuts in April and nPower who had led the way by introducing price cuts in December 2014. Those price cuts were ordered by Ofgem.
EDF Energy cut its annual standard variable gas bill by 1.3% whilst Scottish Power reduced domestic gas prices by 4.8% in February, with British Gas cutting average energy bills by 5%. E.ON reduced its standard gas price by 3.5% and nPower committed to a GBP33 per year reduction in both gas and electricity for its customers. SSE cut its bill by 4.1% but not until April.
Looking forward, a Conservative majority would allow the party to implement its energy policy, which focuses more on the consumer rather than the reforming the Big Six firms, which will be welcome news to the companies.
The Conservatives want every UK household to have a SmartMeter by 2020 to allow more "accurate bills" and allow customers to switch suppliers within a single day. It has also pushed, as evident following the Power To Switch campaign, the amount of independent suppliers in the market to increase competition to lower bills.
This is all part of a bigger picture. In 2014, Ofgem referred the retail energy market for full investigation to the Competition and Markets Authority after the regulator found "that competition isn?t working as well as it should for consumers".
Ofgem said there was increasing distrust of energy suppliers, uncertainty about the costs and benefits of the relationship between the supply businesses and the generation arms of the six largest suppliers, and rising profits with no clear evidence of suppliers reducing their own costs or becoming better at meeting customer expectations.
The CMA took on the case, and is currently conducting its investigation, which is expected to be finished before the end of 2015.
Since the investigation was launched, Ofgem has handed out multiple fines to energy firms for failing to hit targets, overcharging, poor customer service and tariff fixing.
E.ON was fined GBP7.8 million in February for the second time by Ofgem for incorrectly charging customers exit fees and overcharging customers following price rises whilst British Gas was fined GBP11.1 million for failing to meet energy saving measures and carbon emission reductions. Ofgem also launched an investigation in January into whether SSE PLC put its competitors at a disadvantage in the electricity connections market whilst EDF Energy was fined GBP3 million in August 2014 over its poor complaint handling.
By Joshua Warner; [email protected]; @JoshAlliance
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