Sept. 25 (Bloomberg) -- Ed Miliband, the leader of the U.K.’s opposition Labour Party, pledged to freeze energy bills and said price increases have enriched power companies at the expense of consumers.
Data from energy regulator Ofgem shows that energy companies’ net profit on each bill has risen from 5 percent in May 2010, when David Cameron’s coalition government took power, to 6.7 percent in May 2013. For Miliband, speaking yesterday at his party’s conference in Brighton, southern England, it’s evidence that “the system is broken.” His office said capping prices until 2017 would cost the industry 4.5 billion pounds ($7.2 billion).
“Bills have gone up for three reasons: the cost of wholesale energy, which you can’t control; the cost of government policy, such as requiring utilities to buy wind and solar power; and third because utilities have steadily increased their profits,” said Chris Rogers, senior utility analyst with Bloomberg Industries. “The danger of fixing prices is that the energy companies turn around and say they’ll invest elsewhere in the world.”
With Britain’s economy recovering from the recession, bolstering the government’s position that its measures are working, the Labour leader is focusing on the cost of living as a way to win over voters before the 2015 election. In his address, he said the prime minister has little interest in the lives of ordinary voters.
Cameron’s Conservative Party will hold its annual conference in Manchester, northern England, next week.
Philip Shaw, an economist at Investec Securities in London, said rising fuel bills had become more noticeable as a result of recent pay freezes in the economy. While inflation was 2.7 percent last month, wages grew an annual 1 percent in the quarter through July.
“Energy prices are a highly emotive topic in the U.K.,” said Shaw. “Utility companies put their prices up in real terms from year to year. In years gone by households were better able to weather this price because you’d see your post-tax salary going up.”
As recently as June 2009, energy companies were losing money on household bills, according to the Ofgem data.
Centrica Plc, the largest supplier of energy to homes, said yesterday that the Labour policy would jeopardize the future of energy production in the U.K.
“If prices were to be controlled against a background of rising costs it would simply not be economically viable for Centrica, or indeed any other energy supplier, to continue to operate,” the company said in a statement on its website. “Far less to meet the sizeable investment challenge that the industry is facing.”
Miliband said this morning that he’d written to the big energy companies urging them to cooperate with his proposal. He dismissed their objections to the plans, calling the companies “pretty unreliable witnesses.”
“They’ve been engaging in quite predatory behavior,” Miliband told BBC Radio 4. “When the wholesale price is going up, people start to pay more, and when the prices come down, people go on paying more.”
The Labour leader said his party had received legal advice confirming it can cap prices and that energy companies can accommodate the price freeze “on any reasonable scenario.”
Lakis Athanasiou, a utilities analyst at Agency Partners LLP in London, said the margins were still low enough that the Miliband proposal could backfire.
“The U.K. is a price taker on global energy markets. When you can’t control wholesale prices, you can’t regulate retail prices,” said Athanasiou. “Companies will just start ditching customers if they can’t make any money. You’ll be forcing some of them out of business. Utilities aren’t making that much money from selling power and gas to households.”
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