MP attacks 'obscene' power profits as 40% price rise is predicted

At a hearing of the Commons Business Select Committee, Labour's Lindsay Hoyle said: 'This is rip-off Britain and you are part of the rip-off'.

The top executives of Britain's 'big six' power firms faced tough questioning over rising bills - and predictions that they will soar another 40per cent by Christmas.

During tense exchanges, the MPs said the companies have made huge profits but failed to build the infrastructure needed to guarantee energy supplies.

But the power chiefs blamed rising wholesale costs for the problems faced by consumers and confirmed that bills 'will have to rise significantly'.

In the firing line were Sam Laidlaw, the chief executive of Centrica, which is the parent company of British Gas, and his opposite numbers at Npower, E.on, EDF and Scottish&Southern Energy. Scottish Power was also represented.

Mr Hoyle said: 'The public's view is that you are the fat cats of British industry. I think most people would describe what they see as obscene profits.'

Centrica made post-tax profits of £1.2billion last year, boosted by the fact that 20 per cent of the gas it sells comes from its own fields in the North Sea.

Mr Hoyle said: 'It seems to be heads you win, tails customers lose.'

But Mr Laidlaw said the benefits from owning gas fields are more than wiped out by the extra money British Gas has to pay to buy the supplies needed by customers.

He said the company is selling at a loss.

It is having to pay £1 a therm for wholesale gas for the coming winter, but its current charge to customers is a lower 60p a therm.

'That is not a sustainable business model,' Mr Laidlaw said. 'It is clear at some point that gas prices are going to have to move up.'

MPs are concerned that power companies have failed to build the gas storage facilities the country needs to guarantee supplies all year round.

This means that, during the summer, cheap gas from the North Sea is exported to Europe and put into storage.

It is then sold back in the winter at a huge mark-up.

Britain currently has only around 18 days of gas storage compared to 90 days in Germany and 122 in France.

The company chiefs said they needed to make profits to invest billions in storage facilities as well as new power stations and wind farms.

They told the MPs they are largely at the mercy of swings in the wholesale price of gas, which has been driven up in the past year because of a link to the cost of crude oil.

Ian Marchant, chief executive of SSE, said: 'I can see that, unless something drastic happens, the whole industry's prices will have to go up significantly because of the rise in input costs'.

The chief executive of Npower, Andrew Duff, said price rises were necessary because 'we are going through an energy price shock the like of which we have not seen since the 1970s'.

Dr Paul Golby, chief executive of E.on in the UK, said price rises were necessary to cope with the 'seismic' increase in wholesale prices.

The energy firms faced a string of accusations.

MPs are concerned that they are failing to compete to offer better prices.

There is a gap of only £35 a year between them on a typical dual-fuel annual bill.

The committee attacked the firms for failing to help people who cannot pay their bills and profiteering from customers who have prepayment meters by charging them an average of £145 a year more.

The MPs also heard that small competitors, who could cut bills, are being locked out of the market by the major players.

The big six are refusing to sell gas and electricity to small rivals, so preventing them offering meaningful competition.

In theory this could represent illegal market manipulation.

The major players are also allegedly using predatory prices to steal customers.

This involves charging existing loyal customers higher prices to subsidise offering very low tariffs to new ones.

The tactics were detailed by commercial director of the small supplier BizzEnergy, Keith Munday, who told MPs they 'leave a very nasty taste in the mouth'.

The official consumer body Energywatch last night seized on the allegations to demand a full-blown inquiry by the Competition Commission in the UK and its counterpart in the EU.

The power chiefs were also accused of conning customers into switching to more expensive tariffs.

It emerged that one in three people who have been talked by salesmen into changing suppliers has ended up paying a higher tariff.

Committee chairman Peter Luff MP turned his fire on Npower, whose salesmen have recently been found guilty of tricking customers. He told Mr Duff: 'You must be pretty ashamed.'

Mr Duff admitted there had been problems but said they could not happen again.