Energy bosses defend rise in bills

Stephen FitzpatrickEnergy companies today insisted controversial rises in bills were partly down to green taxes but stood accused of charging customers "the maximum price they feel they can get away with".

Rising wholesale costs and and environmental "stealth taxes" were behind the average 9.1% hike announced by some major firms, the Energy and Climate Change Committee was told.
But the businesses practices of the "Big Six" was called into question by small scale competitor Ovo Energy.

Managing director Stephen Fitzpatrick told MPs he "can't explain" the price rises being imposed because his company was buying gas at a cheaper price - 5p a therm less - than it had in 2009.

Loyal bill-payers are charged are a far higher rate, in some cases £200 more, and loaded with environmental costs than those who switch but the companies responsible go "unchallenged" by Ofgem, he said.

"It looks to me like a lot of energy companies, a significant number of the Big Six, are charging the maximum price they feel they can get away with to the customers that they feel will not switch under any circumstances and then maintaining the illusion of competitive pricing with tariffs targeted towards a very small number of relatively well-engaged customers," he told MPs.

"In the case of Npower, which is the worst offender, historically and today the price differential is about 16%, which is about £200."

He accused British Gas of being the "most active" in terms of running a dedicated "win back team" whose sole job was to call up customers that were leaving to say 'now we can cut your bill'.

"When this kind of behaviour is allowed to go unchallenged, and an ex-monopoly advantage that the Big Six have, is allowed to go unchallenged by Ofgem, then you will never get effective competition.

"If you don't have effective competition in a retail market then you are always going to be trying to find out where the money has gone and time and time again you will hear very clever, very complex, very confusing answers and you will never get to the bottom of it.

"Effective competition is the only solution to lower bills."

Mr Fitzpatrick has previously suggested that the larger energy companies pay over the odds for energy when their retail arms buy from their own wholesale divisions - a claim the other energy bosses denied today.

Pressed on the allegation, Tony Cocker, chief executive officer of E.ON, said: "We buy our electricity and our gas for the retail business from the market via our trading business.

"We operate our businesses on a standalone basis.

"There is absolutely no cross-subsidy between the businesses."

Mr Cocker, who described green schemes as a "stealth tax" or "poll tax", said E.ON had not yet made a decision on whether to follow the other firms and increase prices.

"We will hold our prices as long as we can," he told the MPs, adding that his company faced the same pressures as the other firms, with rises in wholesale and network costs, as well as the social and environmental obligations.

He has written to Prime Minister David Cameron calling for a competition commission investigation into the industry to be set up to help reassure customers.

"I fundamentally believe that this market is competitive but I acknowledge we are not trusted and therefore I believe we need to have a very thorough competition commission investigation," he said.

William Morris, managing director of SSE, which has announced an 8.2% price rise, said he regretted having to increase bills for customers, who were "struggling to maintain their budgets".

Transport costs had increased by 10%, while the Government's environmental schemes had risen by 13%, he said.

"We would like to see those costs taken off the customers' bills and onto taxation. We welcome the Government's decision to review that."

Mr Morris said that companies would reduce bills as quickly as possible if the Government decided to scrap the green taxes.

Companies have estimated that bills could be cut by around £60 if the green taxes were axed.

Guy Johnson, external affairs director of Npower, which has announced average rises of 10.4%, said the largest driver of price rises had been the cost of the so-called climate obligation on power firms.

The green taxes cover the period to March 2015, so the energy firms will have to fulfil a large part of their obligation next year, he said.

"That was a concern when we were considering prices for next year."

An analysis by industry regulator Ofgem showed that, while the increases announced so far this autumn by some of the companies have averaged 9.1%, wholesale prices have risen by 1.7% - adding just £10 to the average household bill of £600.

Labour leader Ed Miliband announced last month that he will impose a freeze on energy bills for 20 months until a tougher regulation system was introduced if he wins at the next election.

Andrew Wright, interim chief executive officer of Ofgem, it was " absolutely right" that there should be a debate about its powers to regulate the industry.

"Our job is to make the market work as effectively as we can," he told the committee.

Ramsay Dunning, of the small operator Co-operative Energy, said that the way the "Big Six" operated looked to outsiders like a cartel and was deterring competition.

"As an industry we have a problem. From the outside it looks a bit like an oligopoly, it looks a bit like a cartel. I actually don't believe it is, but it looks like it from the outside.

"That in turn deters competition," he said.

"We need to do something to change that appearance. That is where we need complete operational, managerial, reporting separation of the generation side of the industry from the supply side of the industry."

Labour MP John Robertson warned that "thousands" of people were dying of hypothermia because they could not afford to pay their bills.

He said customers who fell into debt were being moved onto pre-payment meters which effectively forced them to "self-disconnect" because they could not afford to buy any credits.

Ian Peters, managing director of energy at British Gas, said that moving people onto pre-payment meters was a "responsible" way of repaying debt, and that the company "pro-actively" monitored their consumption.

"To the extent we watch consumption patterns drop - and we do - we contact those customers to find out the explanation behind it," he said.

Neil Clitheroe, the chief executive officer, retail and generation for Scottish Power, said that if a pre-payment customer did not charge their key within 30 days, they were contacted by the company.

Mr Robertson retorted: "They could be dead by that time Mr Clitheroe. That's the problem. There are thousands of people who die because of government policy.

"The big reason is they die of hypothermia and they can't afford to keep the heating on. By the time you have gone to look for them it's too late."

Mr Clitheroe acknowledged that more could be done to identify and protect vulnerable customers.

"Can we ensure that no one falls through the net, can we use data from government in terms of benefits profiles better, can we create better signals that we identify customers better? Yes," he said.
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