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Energy bosses defend prices rises
Caroline Flint says energy firms must come clean about why they are imposing yet more price rises when they are already making huge profits
Energy company bosses today defended controversial rises in customers' bills, partly blaming green taxes for the recent hikes of over 9%.
One executive also denied that prices had been put up ahead of any freeze promised by an incoming Labour government.
MPs on the Energy and Climate Change Committee fiercely questioned the companies about their pricing policies and the impact of soaring bills on millions of consumers.
Guy Johnson, external affairs director of Npower, which has announced average rises of 10.4%, said the largest driver of price rises had been the cost of the so-called climate obligation on power firms.
The green taxes cover the period to March 2015, so the energy firms will have to fulfil a large part of their obligation next year, he said.
"That was a concern when we were considering prices for next year."
Mr Johnson said firms were faced with increases in wholesale prices of 3%, increased transport costs of 10%, while costs such as the environmental obligations had jumped by 31%.
"External costs are driving our prices increase," he maintained. "We are not raising them in anticipation of a price freeze."
William Morris, managing director of SSE, which has announced an 8.2% price rise, said he regretted having to increase bills for customers, who were "struggling to maintain their budgets".
Transport costs had increased by 10%, while the Government's environmental schemes had risen by 13%, he said.
"We would like to see those costs taken off the customers' bills and onto taxation. We welcome the Government's decision to review that."
An analysis by industry regulator Ofgem showed that, while the increases announced so far this autumn by some of the companies have averaged 9.1%, wholesale prices have risen by 1.7% - adding just £10 to the average household bill of £600.
SSE was the first of the major energy companies to announce it was raising gas and electricity bills. Its increase of up to 10% will add a typical £106 to annual dual-fuel customer charges to reach £1,380.
The company said wholesale energy prices were up 4%, paying to use newly-upgraded networks by 10% and Government-imposed levies up 13%.
British Gas is increasing electricity bills by 10.4% and gas tariffs by 8.4% for around 7.8 million families this winter.
RWE npower will put up electricity and gas prices by 9.3% and 11.1% respectively from December 1, affecting about 3.1 million customers.
ScottishPower will raise gas tariffs by 8.5% and electricity prices by 9% on average from December 6 for its 2.2 million customers.
Consumer group Which? has written to Chancellor George Osborne calling for him to take action to curb costs in his Autumn Statement, warning that three in 10 people do not know how they will afford to heat their homes this winter.
" People need your help - and they need it now," it has told the Chancellor.
It calls for a number of measures to be introduced to claw back cash, including separating energy generation from supply to help make the wholesale market more competitive, s crapping the carbon floor price, freezing the smart meter roll-out for two years, removing the Warm Home Discount from consumers' bills and reforming the Energy Companies Obligation, which helps people insulate their homes.
The plans could save consumers up to £1.8 billion per year, Which? estimates.
A Department of Energy and Climate Change spokeswoman said: " The Government is working hard to help people with their rising energy bills by improving competition, making the nation's homes cheaper to heat and providing targeted help for the most vulnerable.
"The Energy Company Obligation helps people to save energy and money on their bills, through prompting energy companies to green-proof their customers' homes.
"Having warmer and more energy-efficient homes, as a result of the Energy Company Obligation, will result in lower energy use, and by default lower energy bills."
The Prime Minister's official spokesman said: "It is for the energy companies to explain the decisions they have taken with regard to bills."
Stephen Fitzpatrick, managing director of Ovo Energy, one of the smaller brands on the market, told MPs he "can't explain" the price rises being imposed because his company was buying gas at a cheaper price than it had in 2009.
"It looks to me like a lot of energy companies, a significant number of the Big Six, are charging the maximum price they feel they can get away with to the customers that they feel will not switch under any circumstances and then maintaining the illusion of competitive pricing with tariffs targeted towards a very small number of relatively well-engaged customers," he said.
"In the case of npower, which is the worst offender, historically and today the price differential is about 16%, which is about £200."
He added: "We buy all of our power and gas on the wholesale market and the easiest way I can explain what has happened to you in the wholesale market in terms of pricing is that the most expensive price we have paid for wholesale gas in the last four years was in, I think, May 2011, that was 74p a therm.
"Since then it has been below 72p a therm for this winter, last winter and next winter. We are buying gas for next winter at a current price of 69p a therm.
"So I can't explain any of these price rises, other than they are not the prices we see in the liquid wholesale market.
"I think it is common practice among several of our competitors that they load the environmental and social obligation costs on to those customers that are less likely to leave."
Mr Fitzpatrick has previously suggested that the larger energy companies pay over the odds for energy when their retail arms buy from their own wholesale divisions - a claim the other energy bosses denied today .
Pressed on the claim, Tony Cocker, chief executive officer of E.ON, said: "We buy our electricity and our gas for the retail business from the market via our trading business.
"We operate our businesses on a standalone basis.
"There is absolutely no cross-subsidy between the businesses."
Mr Cocker said E.ON had had not yet made a decision on whether to follow the other firms and increase prices.
"We will hold our prices as long as we can," he told the MPs, adding that his company faced the same pressures as the other firms, with rises in wholesale and network costs, as well as the social and environmental obligations.
He described the cost of the green schemes as a "stealth tax" or "poll tax", adding that eco-reforms should be introduced in a more measured way.
He also told MPs that his company had invested £7 billion over the past five years.
Mr Morris said that companies would reduce bills as quickly as possible if the Government decided to scrap the green taxes.
Companies have estimated that bills could be cut by around £60 if the green taxes were scrapped.
Mr Morris said he was "profoundly worried" about talk of people being forced to chose between eating or heating, insisting that a range of measures were in place to help customers struggling with their bills.
"We don't want to fuel those fears - the system is in place to prevent that."
Mr Fitzpatrick told the MPs they would never find "where the money has gone" because the Big Six were among the "best filibusterers in the business".
He claimed some companies only offer competitive prices to customers once they call to say they are leaving to go to another supplier.
"British Gas seems to be the most active with a dedicated win back team whose sole job it is to call people up and say 'oh, there's been a terrible mistake, we have been overcharging you all this time and now we can cut your bill'," he told the committee.
"When this kind of behaviour is allowed to go unchallenged, and an ex-monopoly advantage that the Big Six have, is allowed to go unchallenged by Ofgem, then you will never get effective competition.
"If you don't have effective competition in a retail market then you are always going to be trying to find out where the money has gone and time and time again you will hear very clever, very complex, very confusing answers and you will never get to the bottom of it.
"Effective competition is the only solution to lower bills."
Mr Cocker hit back at the claims insisting E.ON gives the same prices to new and existing customers.
"We provide the same prices to our existing customers as to our new customers," he said.
He told MPs that he had written to Prime Minister David Cameron calling for a competition commission to be set up to investigate the industry to help reassure customers.
"I fundamentally believe that this market is competitive but I acknowledge we are not trusted and therefore I believe we need to have a very thorough competition commission investigation," he said.
The investigation would help to "de-politicise" the debate, MPs were told.
Labour MP Albert Owen questioned executives of the three other Big Six energy firms about the fairness of giving big pay rises to top staff while customers were struggling to pay their bills.
Mr Owen said he was a customer of British Gas - adding that he might not be for much longer - and pressed the company's managing director of energy Ian Peters over why the restraint on the pay of consumers was not being shown by executives.
The company has increased bills by 38% since 2008, and the remuneration of the chief executive of British Gas parent firm Centrica jumped by 36% to £2.35 million in the same period, he complained.
Mr Peters said executive pay was a bigger issue than that faced by the energy industry, adding that the firm's remuneration committee would be "well aware" of what was being said.
Neil Clitheroe, chief executive of retail and generation at Scottish Power, revealed that 60,000 customers called the company with concerns "virtually straight away" when the firm announced its 8.6% increase in bills last week.
"It is the hardest decision we take," he said, adding that he received an annual bonus, based on customer and employee satisfaction, cost controls and profits.
Martin Lawrence, director of energy sourcing and customer supply at EDF Energy, said his bonus had fallen in the past two years.
Greenpeace policy director Doug Parr said: "For the Big Six to try and use green taxes as a fig leaf for rising energy prices marks a new low for them, which is saying something. Gas prices, not renewable energy, have pushed bills up.
"Green taxes remain a fraction of household bills, and are one of the best investments that can be made today to reduce costs for consumers over time.
"The Government's own independent advisers have concluded that switching to clean energy will save households hundreds of pounds over the longer term. It would be perverse for the Government to side with the Big Six and cut investment in measures that will actually help households and boost energy security in the long run."