Reform UK's distorted power market, MPs say

Monday, July 28, 2008

Britain's energy markets need a radical shake-up to tackle inefficiencies as homes and businesses brace themselves to pay significantly more for power in the future, MPs warn today.

Consumers could be forced to pay more for their power than those in other countries, and if the discrepancies are not tackled it could hit the competitiveness of British manufacturing, the business and enterprise committee says in a report.

As well as measures to increase the markets' efficiency, the committee is demanding that government and energy companies change their approach to fuel poverty in the face of high and rising gas and electricity prices.

It states: "Gas and electricity bills for domestic consumers [will] rise significantly in the near future, over and above the increases already announced this year, with serious consequences for millions of households, especially the fuel-poor."

As part of a wide-ranging report into the UK's energy markets, the committee argues for more gas storage capacity to be built and more UK pressure for the liberalisation of continental European markets.

The committee began its inquiry in the wake of the rise in domestic energy prices earlier this year, and is publishing its findings as more increases are set to kick in.

EDF Energy said on Friday it would increase its gas prices by 22% and electricity by 17%, with other major suppliers likely to follow suit in the coming weeks.

In its report, the committee acknowledged that no one had produced any evidence suggesting collusion between energy suppliers in either the wholesale or retail markets. But it noted that in a retail market dominated by six big companies - British Gas, Scottish and Southern Energy, Scottish Power, EDF Energy, E.ON and npower - "it is easy for those players to make informed judgments about the behaviour of their competitors" and that "this alone can distort competition".

Committee chairman Peter Luff said: "Just because we have found no evidence of collusion does not mean we have given the 'big six' energy companies a clean bill of health - far from it.

"It is clear there are very real problems in the energy markets at all levels, and going beyond these six companies, which need to be addressed."

The committee said that while domestic measures could not keep prices down when they were high elsewhere, it noted: "We have concerns that the UK's energy markets are not functioning as efficiently as they should, and that UK prices may be higher than those of [other] countries."

The committee said a fundamental policy rethink on fuel poverty was required. Programmes were not sufficiently directed at those in most need, and efforts by the government and industry needed to be focused on improving the housing stock of the fuel poor as the most effective way of reducing bills and carbon emissions.

"It is very disappointing that ... the government has reduced the budget for Warm Front [energy efficiency grants] at a time when the need for it is greatest."

The fuel poverty charity National Energy Action described the report as a "breath of fresh air ... Its recommendations are bold but realistic."

The committee also expressed concern at the higher bills faced by businesses and said: "Industrial consumers now face prices above European levels. If these price differentials are sustained, they will affect the competitiveness of the UK economy, and put many thousands of jobs in manufacturing at risk."

The manufacturers' organisation EEF said: "Under our much-vaunted liberalised market, industrial consumers are now paying significantly more for their energy than their competitors in Europe. Government must act robustly on the committee's recommendations." The report calls on Ofgem to look at both the forward gas market and the supply of electricity to small and medium-sized companies.

This story was featured on The Guardian website.

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