Call to investigate energy 'oligopolies'

Call to investigate energy 'oligopolies'

Britain's electricity and gas supply industry is a "comfortable oligopoly" that feels little need to innovate or compete, an industry watchdog told MPs yesterday.

Allan Asher, chief executive of Energywatch, said that over the last decade the number of gas and electricity suppliers had fallen from 20 to six, while in some areas only two or three firms competed.

Calling for the sector to be subject to a Competition Commission investigation, Asher said: "There is a myth that there is vigorous price competition between them [the suppliers]. For the main product they most actively sell - direct debit for dual fuel, gas and electricity - the price difference between the cheapest and most expensive is £30 a year; it's just a few pence a week," Asher told the cross-party business and enterprise select committee.

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He also criticised the price that companies charged consumers using pre-payment meters, who are often among the poorest. In some cases, these paid far more than customers paying by direct debit. Pre-payment meters should be called "the poor-pay-more meters", he said.

Asher was giving evidence at the first session of the committee's inquiry into Britain's energy markets, which was set up after a series of price increases that took average household bills for dual fuel to about £1,000 a year. The energy companies have blamed the soaring price of oil for higher bills. Many European gas contracts are indexed to the price of oil - a linkage that Asher described as "toxic".

Peter Luff, committee chairman, said the MPs had never before received so many submissions "from the outside world" as for this inquiry. Big energy users, the energy companies and charities concerned with fuel poverty are also due to give evidence over the coming weeks.

Asher told the committee it was a mistake to think that oligopolies necessarily made huge profits. "Often they have high cost structures and are inefficient ... and consumers are losing out," he said. Prices in Britain were rising faster than elsewhere in Europe, he said, with electricity prices now the fourth highest and gas prices the 10th most costly.

Asked if he understood the difference between economic theory and running a business, Asher replied: "We are not in the business of theorising; the problem is the real damage being caused to real people by our broken markets."

Asher was also critical of how the wholesale market worked in Britain and warned that the situation would worsen if British Energy was sold to one of the vertically integrated companies (ie those both selling and generating energy). Such companies would then control three-quarters of electricity generation. "The only logical consequence of that is worse service and higher prices."

In the past Britain did have a competitive and liquid wholesale power market but the lead was being dissipated as the rest of Europe caught up, he said. The mistake was "we started to believe our own rhetoric. We went to sleep at the wheel."

He said Britain needed more generating capacity but new entrants would not enter the market if they believed they faced barriers. He noted that the number of generators had shrunk in Britain, with no large new entrant in the last decade. On rumours of possible new entrants, he said: "At the gym I use, thousands of people have membership but don't turn up."

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