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U.K.’s Big Six Energy Companies Try To Blame Carbon Rules For Price Hikes

By Ari Phillips on October 29, 2013 at 3:29 pm

"U.K.’s Big Six Energy Companies Try To Blame Carbon Rules For Price Hikes"

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CREDIT: flickr: Andrew Turner

Capitol Hill may be abuzz with House committee hearings on how green regulations are killing the coal industry. But across the pond in the U.K. a bizarro version of the same story played out as the heads of the six major retail energy suppliers, providing around 95 percent of the market, tried to explain how green levies were forcing them to raise prices on consumers.

Executives from E.ON, SSE, Npower, Scottish Power, British Gas, and EDF sat in front of the Commons Energy and Climate Change committee to explain why they’d been forced to raise prices by up to ten percent going into the winter heating months. The price increases are substantial enough that eight out of 10 households could be forced to ration their energy this winter.

This comes on the heels of the Ofgem report that the wholesale price energy firms buy gas and electricity for has gone up just 1.7 percent in the past year, while four of the firms have already announced retail price increases averaging a 9.1 percent. Ofgem regulates the electricity and gas markets in Great Britain.

While consumers fret about keeping warm the energy companies try and explain away the fact that profits have doubled over the last year after an unusually cold 2012/13 winter.

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

Npower has paid no corporation tax for three years on profits of £766 million, but according to Natalie Evans at the Mirror, it would muddy the water for the MPs to ask about this as the executives could well answer, “because the government said we didn’t have to.”

According to the Mirror, Npower is simply exploiting the rules that give energy firms tax breaks for investing in infrastructure as well as the secretive way foreign-owned energy companies are allowed to operate, creating legal loopholes.

Last year profits at Npower increased by 25 percent soon after it imposed large price hikes on customers. It also recently emerged that Npower, owned by German utility firm RWE, has paid out £35 million in bonuses in the past five years.

A recent analysis of Ofgem data on customer bills showed that the energy companies’ profits are currently around six percent. This is far above the Oftem recommended profit margin of 1.5 percent.

Energy company executives said that the demand to reduce carbon, secure the energy supply, and lower bills lower was too much to ask for all at once.

A new green initiative called the Energy Company Obligation, or ECO, an energy efficiency program introduced in Great Britain earlier this year to replace the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP), was blamed for part of the price increases.

Guy Johnson said that regulatory costs relating to programs like ECO had gone up by about a third in the last year, with transmission costs going up another ten percent. He said a certain amount of the increase in transmission costs can be attributed to bringing new forms of renewable energy such as wind and solar online.

According to The Carbon Brief, one of the main points of contention is between the energy companies — who say that green measures will add up to £50 over the next year to an average bill — and the Committee on Climate Change, the government’s climate adviser, which says the figure is just £10.

During the hearing, Greenpeace policy director Doug Parr said, “For the Big Six to try and use green taxes as a fig leaf for rising energy prices marks a new low for them”:

“Which is saying something … Green taxes remain a fraction of household bills, and are one of the best investments that can be made today to reduce costs for consumers over time. The Government’s own independent advisers have concluded that switching to clean energy will save households hundreds of pounds over the longer term. It would be perverse for the Government to side with the Big Six and cut investment in measures that will actually help households and boost energy security in the long run.”

While Parr was strident, Stephen Fitzpatrick, the managing director of Ovo Energy, a small independent energy company, took every opportunity to criticize the Big Six and in doing so become somewhat of a people’s champion on social media.

Fitzpatrick said that wholesale prices paid by his company were actually falling and that he couldn’t explain the rise of the other companies’ prices.

Fitzpatrick told the MPs they would never find “where the money has gone” because the Big Six were among the “best filibusterers in the business.”

He claimed some companies only offer competitive prices to customers once they call to say they are leaving to go to another supplier.

“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,” Fitzpatrick said at one point.

Terry Macalister summed up the situation for an article in The Guardian, writing, “Too big to fail?”:

“Energy companies seem to be claiming, like the banks, that we need them more than they need us. They repeatedly warn that if they are not allowed to make profits they won’t invest. Yet they’ve clearly not invested enough in the past, while their dominance in the market may have deterred other potential investors.”

Yesterday British PM David Cameron said, “I’m frustrated about the Big Six. I want to see the Big 60 — I want to see many more energy companies.”

The issue has become politicized as Labour leader Ed Miliband announced last month that an incoming Labour government will freeze energy prices for 20 months, until a reformed energy market can be put in place at the start of 2017.

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