Business

Energy boss calls for competition inquiry into market

  • 29 October 2013
  • From the section Business
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The boss of one of Britain's largest energy companies has told MPs that there should be an inquiry into the whole energy market.

Tony Cocker, the chief executive of E.On, said he had written to Prime Minister David Cameron to suggest a full investigation.

"We need to have a very thorough Competition Commission inquiry," he said.

He was speaking in front of MPs on the Energy and Climate Change Committee.

Another energy company, EDF, suggested the same thing earlier this month.

Andrew Wright, the acting head of the regulator, Ofgem, told the MPs that competition in the market would be fully examined in a review due out in the Spring of 2014.

"We will look at all aspects that affect competition in the market," he said.

But Centrica, the parent company of British Gas, said a full competition inquiry would not be helpful.

"We believe it unnecessary as the market is competitive," said a spokesperson.

"There have been numerous inquiries into the energy market and none have found any evidence of anti-competitive behaviour.

"However, if it'll take another inquiry to improve trust then we are supportive."

Prices

The bosses of the six largest firms in the UK had been summoned in front of the committee to justify their recent price increases.

So far, four of the companies have announced increases that average 9.1%, with the others expected to follow.

The four firms involved have insisted that the rises were largely due to increasing wholesale prices.

William Morris, the managing director of SSE, told MPs that his firm had faced a 4% increase in wholesale costs over the last year.

He said the cost of transporting energy to homes had risen 10%, while the cost of government and environmental schemes had risen 13%.

But the regulator, Ofgem, has argued that wholesale prices have risen by less than the rate of inflation.

Its data suggests that wholesale electricity and gas together have risen by just 1.7% over the last year.

It estimates the net effect of wholesale gas prices on a household bill should be just £10 extra on a bill of £600.

Stephen Fitzpatrick, the managing director of Ovo Energy, a small independent energy company, told MPs that wholesale prices paid by his company were actually falling.

"I can't explain any of these price rises," he said. "I have been somewhat confused by looking at the explanations for the price rises that we've seen in the past three or four weeks."

Labour leader Ed Miliband dismissed the energy companies' explanations for price rises as "a list of excuses".

'Filibusters'

MPs also asked the energy bosses whether they were buying energy from different parts of their own business, thus inflating prices.

Most of them have a separate generation business as well as a retail business.

But Tony Cocker, the chief executive of E.On, denied they were transferring money to their generating arms.

"There is no cross-subsidy between the two businesses. We operate them as stand-alone businesses," he said.

Martin Lawrence, a managing director of EDF energy, agreed.

"We operate our businesses entirely separately," he said.

The bosses were also asked about the level of profits in their retail arms.

Guy Johnson of Npower said they had invested £2.9bn in the UK in the last five years.

"We've invested 100% of what we have earned in the last five years from generation," said Tony Cocker of E.On.

"I speak for a company that is proudly operating power stations and proudly investing in new power stations to ensure the lights stay on."

But Stephen Fitzpatrick, of Ovo Energy, said the big companies were charging 10% more than they should be.

"We're all trying to tack down where this money is going, But you will never find it," he said. "These guys are the best filibusters in the business."

Transparency

MPs on the Energy Committee also wanted to know how the transparency of the energy companies' finances can be improved.

"Do you understand that the people in this country do not trust you?" asked Ian Lavery MP.

"I completely agree with you," said Tony Cocker.

"But we have worked very hard to improve our business and simplify our tariffs," he told the MPs.

In a letter to the committee, Ian Peters, the managing director of energy at British Gas, admitted that there was further work to do on that.

Later this week, the Energy Secretary, Ed Davey, is expected to set out further details of the annual competition test for the energy market.

The review will be carried out by Ofgem in conjunction with the Office of Fair Trading (OFT) and the new Competition and Markets Authority (CMA).

The government has also said it will look at the contribution made to energy bills by the green levies, although these make up a relatively small part of overall costs.

Labour said it would freeze energy bills for a period of 20 months if it won the next election.

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