Labour Claim Big 6 Energy Firms Paid £4BN More For Power Than Market Rate

Energy firms paid £4bn more for power than market rate, claims Labour
'Big Six' deny inflating prices to make extra profits from their own plants or striking expensive deals to detriment of consumers

Rowena Mason, political correspondent
The Guardian, Wednesday 1 January 2014 22.00 GMT

Labour claims it can it demonstrate that the 'big six' energy firms have been buying electricity at a much higher price than they could get on the open market.

Households may have paid around £150 over the odds for their electricity over the last three years because energy companies bought their power for almost £4bn more than the average market rate, Labour has claimed.

In a new analysis of official figures, the Labour party, which has pledged to freeze prices for 20 months if it wins the general election in 2015, said the big six energy suppliers appear either to be inflating their prices to make extra profits for their own power plants, or striking very expensive deals to the detriment of consumers.

Caroline Flint, the shadow energy secretary, said she could demonstrate that the energy giants – which supply 98% of households in Britain – have been buying electricity at a much higher price than they could get on the open market. This amounts to about £50 a year for the last three years for which data is available, she said.

"These figures reveal the full extent of the way consumers have been overcharged for their electricity," Flint said.

"Energy companies always blame wholesale costs when they put up bills, but it now looks like they could have deliberately inflated prices to boost profits from their power stations.

"The time has come for a complete overhaul of our energy market. Labour will break up the big energy companies, put an end to the secret deals and force them to do all of their trading on the open market."

The party calculated its figures by comparing the price paid for electricity by the energy giants – known as the weighted average cost of fuel – with the average market price a year ahead provided to them by small supplier First Utility.

In response, Energy UK, which represents the big six suppliers, SSE, E.ON, EDF, npower, Scottish Power and British Gas, disputed Labour's figures, saying they were not comparable because they cover more than just the wholesale cost of energy.

"It also covers losses, the energy element of reconciliation-by-difference (RBD) costs and balancing and shaping costs incurred by the supply. The additional costs included in the weighted average cost of fuel make them a totally different figure to the basic wholesale market price," a spokesman said.

"It is also worth pointing out that there isn't a single 'wholesale' price. Different companies buy at different times, from different people, for different prices depending on demand, forecasts and a whole host of other factors. These different business practices mean that each energy company will be paying a different amount for its wholesale energy."

However, Labour said it did not believe these extra costs – which can be incurred when a firm has to match the electricity it has bought with customer demand – could account for the large price differential.

Flint said the public were fed up with the "same old excuses" from the energy industry.

MPs have long raised concerns about the potential for energy companies to increase their profits by selling power from their own stations to their retail arms, either directly or indirectly.

In evidence to MPs in November, all the companies denied selling power from their own stations to their supply businesses at inflated prices and said they only "self supply" a very small amount of electricity or none at all.

However, Tim Yeo, the chairman of the energy select committee, has raised concerns about the lack of transparency around the issue, while another committee member, Alan Whitehead, said in a hearing that all the big companies buy some of their own electricity "in one way or another".

One of the companies, E.ON, has suggested new restrictions on self-supply to provide more clarity, including a "clear and consistent prohibition of cross-subsidy between the generation and supply activities that are within the same group".

In 2011, Andrew Wright, then senior partner, markets, at Ofgem, said there was no concrete evidence but "it's a sensible conclusion" that companies are self-supplying given the lack of liquidity in the wholesale market.

To end any doubts over the issue, Labour wants to make sure the big six formally separate their power stations and supply companies in a similar way to the proposed ringfence for the banks.

The party's analysis is likely to add to pressure on David Cameron to address worries about the energy market, after the Labour leader, Ed Miliband, announced last year that he would freeze prices for 20 months if he becomes prime minister at the next election.

Cameron has dismissed Labour's pledge as a gimmick that would drive business away from Britain, depicting Miliband as wanting to live in a "Marxist universe" and of resorting to a "petty socialist campaign". He has also accused Miliband of helping to push up fuel bills during the last government.

However, he was forced to respond to worries about the soaring cost of fuel – now at a record high of more than £1,400 per household – as he pledged to "roll back" green charges on bills.

The coalition announced that it would take off levies costing each household around £50, but not all consumers have yet seen the benefit of this cut in their bills.

A £53 price cut by British Gas has just taken effect this week, while EDF and E.ON have limited their price rises. Yet SSE has only said it will cut bills before the end of March, while the others – Scottish Power and npower – have not confirmed exactly when they will pass on the reductions.

Labour also pointed out that the efforts to roll back green tariffs came after a round of price increases by the big six, meaning energy bills are still higher this winter than last year.

http://www.theguardian.com/business/2014/jan/01/energy-firms-big-six-labour

I'd really like to see those figures, because been saying for ages that British Gas by their gas from their own company Centrica at an inflated price.