The energy companies act as an unofficial cartel

—The first success of Ed Miliband’s conference commitment to freeze energy prices was to put the issue firmly at the top of the political agenda. That in itself is no small achievement for which millions of consumers are grateful.

If Miliband had not given this issue such a high profile, the latest round of price increases would have passed in the same way as its predecessors – a little bit of political hand-wringing, a day’s headlines and then business as usual. The mere fact that the legitimacy of these increases is being challenged is a major step forward – and one that will not go away. Having raised the question, Labour must now pursue the answer of how to make the case for intervention both credible and effective.

If confirmation was needed that this issue had to be raised, it came from the petulant reaction of the ‘big six’ power companies. By threatening an investment strike and warning of blackouts if their right to increase prices was interfered with, these companies confirmed that their arrogance needs to be confronted. A more measured response which acknowledged the scale of the problem for millions of households might have encouraged greater public sympathy. Instead, we got foot-stamping and threats from people who are not used to being challenged. Their public face, Angela Knight, chief executive of Energy UK, used to be a rightwing Tory MP. Then she became the mouthpiece for the British Bankers’ Association just when their members were bringing the country close to bankruptcy. Who better now to speak for the ‘big six’?

No private companies should be able to exert this kind of blackmail where the pawns in the game – gas and electricity – are so fundamental to the needs of society. Quite literally, these companies hold too much power. Whatever measures eventually emerge, notice has been served that their role as decision-makers and profiteers is no longer acceptable.

Increases in fuel prices have become the single biggest cause of domestic hardship. Asking the ‘big six’ to fund schemes which help those struggling to pay their bills only extends the problem because they too are paid for through gas and electricity bills which then rise even faster. The whole model is broken and needs fundamental review. For privatisation to function fairly, there must be strong regulation to protect the consumer interest. That has been the missing link. As I know from my own time as energy minister, Ofgem has always acted as an apologist for the companies rather than as a champion of consumers. The regulator was more ideological than the government in maintaining that competition alone must provide the answers.

Yet the ‘competition’ on which the system depends is itself a joke. A few years ago I could have told you the London hotel where the ‘big six’ met to decide on price increases and who would go first this time. I am sure it is more subtle these days but they still act as an unofficial cartel. Competition takes place around the edges with various offers to attract switching. But the core prices remain the same and none of them steps out of line.

We hear a lot about the price of gas as justification for increases. Recently there has been a huge increase in power generation from imported coal because it has become extremely cheap. Where is that reflected in our electricity bills?

The theory is that consumers should keep switching suppliers. But this is more difficult than it sounds – and impossible for those who are in arrears. Most of us have never switched and the number doing so has declined because the benefits have become so short-lived.

We all know that huge sums are required to maintain and expand the network in order to accommodate new generating capacity, particularly from renewables. But that is the duty of these companies – not an optional extra.

When privatisation happened, the energy companies acquired a system funded by generations of taxpayers which had developed over-capacity of supply and an infrastructure that carried power to every corner of the country. If they have allowed that inheritance to deteriorate to the point where they can threaten blackouts – in spite of all their price increases – then they should beg the British people for forgiveness, rather than threaten us with further retribution.

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Brian Wilson is a former minister for energy

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Photo: Lee Haywood