Big energy price increases likely
Large increases in gas and electricity bills are likely this year, the energy suppliers have confirmed.
The heads of six major energy companies have been answering questions about the prices from MPs on the parliamentary business and enterprise select committee.
Sam Laidlaw, executive director of Centrica, which trades as British Gas, said it was “obvious that gas prices are going to have to move up.”
Ian Marchant, SSE acknowledged that prices could rise as much as 40%.
Rupert Steele, director of regulation in Scottish Power, said: “The figures for the entire industry will have to increase considerably.”
His comments came as deputies in the commission asked them to defend the large increases in gas and electricity prices faced by households and businesses in the UK.
“We are seeing a seismic shift in commodity prices,” said Dr Paul Golby, chief executive of E.ON.
“It is not difficult to see that the pressure is upward,” he added.
Pressures on prices
The domestic suppliers are under pressure to explain the intentions of prices after the BBC learned that the energy bills in homes could increase by up to 40% this winter.
Industry sources have suggested households might pay 400 pounds more a year on average for gas and electricity.
“It’s easy to see how to get the figures for the BBC,” said Mr Steele for Scottish Power.
The highest price of gas is closely linked to oil prices, which in turn hit a record level of just under $ 140 per barrel this month.
Industry research has suggested wholesale gas prices have risen by over 70% in 2008.
Last month, Centrica - which owns the UK’s largest supplier of energy, British Gas - noted that gas prices for customers could rise again later this year.
Bur Mr Laidlaw said: “Our absolute price levels are currently the lowest in Europe.”
“As we import more gas from continental Europe, who are forced to pay higher prices,” he said.
Both Scottish Power and Scottish and Southern Energy said they had to buy all their gas on international markets, since it does not produce any oil or gas in their own businesses.
New central
It has been suggested that the energy market is indeed “rigged” by long-term contracts for the supply of gas and electricity involving large energy producers Europeans, who are accused of excluding any competition that could drive prices to the bottom.
Vincent DeRivaz, the chef executive of EDF Energy, refused, although he admitted the wholesale markets for gas and electricity could work better.
“The market can be improved,” he said.
“In the wholesale market for gas, there are some improvements to be made.”
The industry executives surprised some of the deputies claiming they needed more financial incentives to invest in building new power plants.
Despite record high prices of oil, gas and electricity, Andrew Duff, chief executive of Npower said: “We are in a very difficult transition phase where returns forward barely cover the cost of investment.”
He explained that his company will have a negative cash flow for many years to come, because the costs of such expenditure.
Dr Golby, E. On, noted that 60% of UK generating capacity needed to be replaced during the next 20 years.
And Mr Laidlaw said that it was unfair for him and his rivals to be described as “big fish”.
“The average profit margin is 3.5% in industry,” he said.
Fuel poverty
The parliamentarians also pressured by the heads of energy extra help being given to low-income and disadvantaged families to help with the impact of rising bills.
Watchdog OFGEM, which is conducting its own investigation on the market, highlighted last month plans to share data on low-income people with energy companies to help people pay their fuel bills.
The proposals, which must be approved by Parliament, are designed to ensure that financial assistance for fuel payments can be better targeted at the elderly and vulnerable.
The government estimates that 2.5 million households are in fuel poverty - defined as when more than 10% of household income spent on fuel bills - but surveillance Energywatch said that the figure is more than four million.
A 40% increase in average fuel bills would be much higher than expected and would put more pressure on homeowners already struggling with food and fuel costs.
However, some analysts believe the increase is closer to 25%.
It is thought that any price ads are more likely to arrive in August, when energy bills are not at the forefront of people’s minds.
But there is a great reluctance on the industry to be the first to reveal a substantial increase, so the increases can be unveiled in stages.
The chief executive of Centrica, Scottish & Southern Energy, NPower, EDF Energy and E. ON United Kingdom attended the meeting, while Scottish Power was also represented.
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