Time to break up the Energy cartel

John with Ed Davey at the launch of the GM Energy Plan at Seimens.

John has written to Ed Davey asking for the break-up of the big 6 and a regulator with more powers.

Last year around 4 million people in the UK were in fuel poverty and struggling to heat their homes. In the same period profits for the big six energy companies went up. And now 4 of the big 6 energy firms have decided to raise customer bills by an average of 9.1% with the other two expected to follow suit.

As someone who has campaigned to alleviate fuel poverty in the past I think these price increases are bordering on criminal. That is why I have written to the Prime Minister and the Energy Secretary calling  for an investigation about how we got here, for the big 6’s cartel to be broken up and for a regulator with more power.

In my letter to the Prime Minister I asked called on the government to investigate how the 6 main companies came to control 98% of the market, how their costs are translated into pricing and how they came to the decision to raise consumer bills by almost 10%.

When Labour came to power in 1997 there were 14 not 6 big energy firms. Because of Labour’s mismanagement of the economy by 2010 there were only 6 big firms who now dominate the market. Greater competition between energy companies meant prices remained at a competitive level and customers were afforded far greater choice when searching for the cheapest energy tariff.

Now Labour wants a price freeze after they allowed a small number of firms to monopolise a once highly competitive market.

An artificial price freeze simply will not work. There is some evidence that energy companies are chasing price rises now because the fear a freeze later. Government needs to look at realistic solutions to this problem.

In my letter to my Liberal Democrat colleague, the Energy minister Ed Davey I called for a legislation to separate wholesale energy for commercial energy suppliers. The big 6 utility firms are currently engaged in the dubious practice of companies being wholesalers and retailers and selling energy to themselves at inflated prices.

Separating wholesale from retail will reduce barriers of entry for smaller firms, increasing competition and encouraging lower prices. Higher levels of competition are the most effective way to control energy prices. Threats of a price freeze only serve to drive up prices now and Labour should be held accountable for their failure to properly regulate the market during their 13 years in power.

It is incredible that the heads of the energy firms could tell MP’s that prices are going up because of rising wholesale costs when not only do the firms themselves have a huge amount of control over wholesale prices but Ofgem has shown that costs have only gone up about 1.7% in the past year.

As we have seen in the last few weeks Ofgem is fairly toothless when it comes to reigning in the big 6 and their reckless price rises. That is why I have also called for more powers to be given to the energy market regulator to bring it in line with Ofwat which has the power to block increases to customers water bills.

The Government has made some headway in tackling fuel poverty such as the Green Deal and Smart Meters and the number of UK resident in fuel poverty is falling. But we are under no illusions, more action is needed.

I truly hope that the Prime Minister and Energy Secretary will put an end to energy firms exploiting the hard-working people of the UK with these completely unjustifiable price rises.

3 responses to “Time to break up the Energy cartel

  1. It’s both useless and spiteful to continue to blame Labour for all the country’s ills. If you need a history lesson, it is Thatcher’s determination to sell all the family silver that created this situation and the only solution is to re-privatise the public utilities. Sadly I don’t think Labour any longer has the bottle or the will and I’m afraid that the Lib Dems will be history after the next general election. But nice try!

  2. Well said Colin. I have no idea how Labour’s “mismanagement of the economy” could somehow be the reason that the privatised energy firms are seeking to extract as much money as they can from the British people. The very nature of privitised utilities is to try and extract as much money as possible from the British people, under the twisted aim of “maximising shareholder value.”

    The following article gives a great (long) overview of how the policies of the Conservatives in the 1980s lead to us losing control of our energy supply: http://www.lrb.co.uk/v34/n17/james-meek/how-we-happened-to-sell-off-our-electricity

  3. Hi Colin and Sam, it is fact that the Labour Government had 13 years to freeze prices when in power and didn’t, and that the market became less competitive on their watch.

    A gimmick of a price freeze, although tempting, doesn’t solve the underlying problem with the market, it just distorts the market, and makes the companies involve pre-empt, or play catch up on prices.

    Investigating the market, breaking up the companies and getting a tougher regulator is a more sustainable solution.

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