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Increases in energy bills can be explained in some cases, the head of Britain’s energy regulator has said, as MPs expressed fury at recent price rises by some of the “big six” utility companies.
Dermot Nolan, head of Ofgem, said on Wednesday that there “can be explanations for price increases by specific companies”, as he was probed by MPs on the Business, Energy and Industrial Strategy Committee for reasons behind recent hikes by the likes of Npower.
Mr Nolan had previously said there was no “obvious” reason why household energy bills should climb in the near term, given that most of the big utility companies have 18-24 month hedging strategies that protect them from sharp rises in wholesale gas and electricity prices.
Since then, two further companies, NPower and ScottishPower have announced price increases. EDF Energy said in December that it would raise electricity prices in March for customers on a standard variable tariff. Around two thirds of British households are on standard rates,
Some companies may be less efficient than others and, therefore, less able to absorb rises in external costs, Mr Nolan told MPs.
The costs of Npower, which earlier this month announced a near 10 per cent rise in energy bills for around half of its customers, “may well be higher than many other companies”, he said, adding that the utility was “not profitable last year”. However, he admitted that it was hard for him to judge the exact reasons behind Npower’s increases, which sparked a political and consumer backlash.
Npower said at the time of its announcement that increasing wholesale costs as well as “rises in the cost of delivering government policies” were to blame.
Lawrence Slade, chief executive of Energy UK, a trade body representing utility companies, said the growing burden of government energy policies should not the underplayed.
Policies such as smart metering and auctions to ensure Britain has enough back-up power during times of high demand would add £120-£140 to the average customer bill next year, Mr Slade said.
Competition in the UK retail energy market is improving, Ofgem has stressed. Mr Nolan said the big six “is changing” as challengers such as First Utility and Ovo Energy grow.
“We’ve seen not quite the big 8 or 9 but we are getting there,” Mr Nolan told the BEIS committee.
However, the big six – British Gas, ScottishPower, EDF Energy, NPower, SSE and Eon – still dominate 84 per cent of the residential market.
Anna Turley MP questioned why the pressure was falling on households to play the energy market all of the time. “With the energy market you feel totally blinded as a consumer,” she said.
Household energy bills are likely to come under a renewed spotlight on Thursday when Centrica, the owner of British Gas, reports financial results.