'Bloated and inefficient' power companies 'stitching up' consumers, says watchdog

Power companies have been accused of operating a 'stitch-up' that means UK gas and electricity prices are rising at the fastest rate in Europe.

And they are threatening yet another round of price rises that could see bills climb by a total of 46 per cent this year.

Yesterday they were accused of effectively rigging the market against customers by Energywatch, the official consumer body.

It said the big six power generators are on course to collect £6billion in what Energywatch chief executive Allan Asher described as unearned profits in the next few years.

Mr Asher told MPs the industry is exploiting consumers and using immoral tactics. He accused the firms of being bloated and inefficient, with the result that as many as one in three bills are wrong.

He condemned the fact that some of the poorest people in the country have to pay much more for heat and light through prepayment meters. The suppliers make £1.3billion a year in this way but refuse to help the vast majority of struggling customers.

The Commons Business and Enterprise Select Committee is holding an inquiry into rising enegy prices.

Mr Asher said a full-blown Competition Commission inquiry is needed to unravel the secretive power supply contracts that are pushing bills through the roof.

He is particularly alarmed that the power companies are getting fat by tying the price of gas to spiralling oil prices, which have reached record levels recently.

Mr Asher believes this 'toxic' link means that annual bills for heat and light are £400 a year higher than they should be.

He said the UK market was 'stitched-up' with the result that prices in Britain are systematically rising much more quickly than in Europe. 'It makes a mockery of saying we have a competitive and healthy market,' he declared.

Over the last ten years, the number of energy firms in the UK has shrunk from 20 to six  -  British Gas, E.on, Npower, EDF, Scottish & Southern Energy and Scottish Power.

These companies not only sell heat and light but are also responsible for producing or importing 80 per cent of gas and electricity.

Mr Asher said this has created a ' comfortable oligopoly' with the result that there is a price gap of only £30 a year between the cheapest and most expensive firm based on a dual fuel contract.

He said the notion that there was competition in the industry was a myth.

'There is a lot of pretence of competition, but it doesn't amount to good companies winning and bad companies losing,' Mr Asher added.

'They really don't feel the need to innovate or compete.

'Sadly, consumers are the losers. Consumers are getting in the neck.'

Mr Asher said action was needed to encourage new firms to enter the UK market, both to build new generating stations or to sell to the public.

Mr Asher said the 5.8million households who have prepayment meters 'have to pay punitively higher prices'.

He went on: 'Why is it that pre-payment meter customers are paying up to £400 a year more for the identical commodity? This is an immoral premium.'