Power companies are ripping off consumers

Power companies are ripping off consumers 

20/05/2008

The Times

UK consumers are being ripped off by a comfortable oligopoly of bloated electricity and gas supply companies, MPs were told yesterday.

At the opening of a parliamentary hearing into competition in the UK power market, Allan Asher, the chief executive of Energywatch, the consumer watchdog, launched a two-hour tirade against the industry's leading players.

He accused Britain's big six energy suppliers of engaging in tacit collusion, claimed competition in the market was a myth and that consumers were getting it in the neck from companies with no incentive to compete or innovate in order to win business. Sadly we have seen the 20 suppliers of 10 years ago shrink into just six, Mr Asher told a cross-party group of MPs on the Business and Enterprise Select Committee. Consumers are the losers. While he acknowledged there was no evidence of outright price fixing, Mr Asher claimed that the largest suppliers followed British Gas, the dominant market player with 16 million customers, in raising or lowering prices. In oligopoly markets you don't need to meet in smoke-filled rooms, he said, citing figures showing that for the most popular product in the industry - dual fuel paid for by direct debit - the annual price difference between the six main UK energy companies - E.ON, British Gas, Scottish Power, N-Power, SSE, and EDF - was less than 30, or just a few pence a week. He said There is a myth that there is vigorous price competition between them. The warning comes amid fears that the industry will increase prices again this summer.

Energy companies have blamed rising wholesale prices for a succession of increases in domestic charges this year, which have taken the average annual dual fuel bill to 1,048, up from 662 in 2005. Global oil prices hit a record of almost $130 yesterday.

Mr Asher's comments unleashed a storm of protest from the industry.

A spokesman for Centrica, the owner of British Gas, said that he was misleading consumers. Despite the impact of record oil prices on the cost of gas internationally, Britain's household gas bills remain the lowest in Western Europe, and our electricity is among the cheapest, too, he said. But Mr Asher rejected the argument that the level of switching - five million last year - offered a guide to the level of competition in the industry.

He said that 4.8 million UK customers, many of whom are among Britain's poorest people, were closed out of the switching market because they use pre-payment meters.

He said that the possible sale of British Energy, the UK's biggest electricity generator, to France's EDF would compound the problem of a lack of industry competition.

The top six suppliers control 55 per cent of the generating market but that would rise to 75 per cent if the EDF deal proceeded.

Winter gas prices yesterday hit a record high of 89.1 pence per therm, and winter 2008 power prices rose to 78.85 per megawatt hour, because of rising costs for power stations.

The US House of Representatives approved legislation yesterday to bring a lawsuit against Opec members for setting the price of oil collectively and limiting oil supplies.

President Bush opposes the legislation because he believes it will trigger retaliation by member countries against US businesses.

The Bill has still to be passed by the Senate.