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Be ready for big rises in gas, consumers warned
Nicholas Cecil, Political Correspondent24 Jun 2008
Energy chiefs today admitted that millions of customers may be paying too much for power.
They pointed the finger at gas producers, alleging they could be making "excess profits" at the expense of families struggling to pay their bills.
MPs investigating the energy market were also warned of significant future price rises with a "seismic shift" in the cost of commodities such as oil and gas.
Bills are also set to rise to pay for the building of a new generation of power stations and other green energy.
British households are paying a " premium" on their bills because of the flawed European energy market.
Rupert Steele, director of regulation at Scottish Power, highlighted these weaknesses in written evidence to the all-party Commons business and enterprise committee.
"We remain concerned that European markets, especially in gas, are not as open as they should be and that the market is not clearing efficiently between the UK and the Continent."
This may be contributing to additional volatility of gas prices in the Britain and possible excess profits for gas producers, the company said.
The MPs were told that basic calculations on likely future energy prices could lead to predictions of 40 per cent rises but that competition within the industry could keep that down.
Energy bosses made clear that households should be braced for big increases. Sam Laidlaw, chief executive of Centrica, which trades as British Gas, said it was "clear that gas prices are going to have to move up".
But he said it was not fair for him and his rivals to be described as "fat cats". "The average profit margin is 3.5per cent in the industry," he said. He added: "We have to buy increasingly large volumes of gas from different parts of the world. Global gas prices are being driven ever higher by record oil prices and by rising demand from regions such as Asia."
Dr Paul Golby, chief executive of E.ON UK, added: "We are facing a seismic shift, quite frankly, in commodity prices."
The wholesale gas price is closely linked to the price of oil, which itself hit a record high of just under $140 a barrel this month. Industry research has suggested wholesale gas prices have risen by more than 70 per cent in 2008.
Scottish Power also warned that a "huge investment programme" was needed over the next decade to modernise Britain's energy system as older fossil fuel and nuclear power plants are retired.
"At present, wholesale market prices and spreads are not sufficient to support-the investments needed," the company said.
Centrica appeared to suggest that some dubious deals meant that Britain was losing out to other European countries over gas supplies. "Of particular concern has been the absence of gas flowing through the interconnector from continental Europe, even when gas prices differentials between the UK and Europe would indicate that gas should flow," it said in written evidence.
"Until there is a well-functioning competitive wholesale gas market in northwest Europe, players on the Continent will use the UK as a gas supplier of last resort at short notice but may not be able or willing to provide the reciprocal service to the UK in response to price signals. The UK suffers from being the gas bank for north-west Europe."
Scottish & Southern Energy, NPower and EDF Energy were also giving evidence.
