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Cameron Announces Competition Probe Into Energy Suppliers

Oct. 23 (Bloomberg) -- Prime Minister David Cameron announced a probe into profit and competition among U.K. energy suppliers as both his government and the opposition bid to show they have plans to deal with inflation-busting price increases.

“We will be having a proper competition test carried out over the next year to get to the bottom of whether this market can be made more competitive,” Cameron told lawmakers in Parliament in London today. “I want more companies, I want better regulation, I want better deals for consumers.” He said there’s also a “need to roll back” green levies that suppliers have said contribute to higher costs.

Cameron’s spokesman, Jean-Christophe Gray, told reporters in London the energy regulator, Ofgem, will work alongside the Office of Fair Trading and the new Competition and Markets Authority to conduct an annual review of competition. Further details will be set out in a statement to Parliament next week, with the review focusing on prices, profits and barriers to new entrants in the energy market, Gray said.

Three of the “Big Six” companies that dominate Britain’s energy market have announced gas and electricity price increases of about 10 percent over the past two weeks, almost four times the rate of inflation. One of Cameron’s Conservative predecessors as prime minister, John Major, called on the government yesterday to impose a windfall tax on the profits of the energy companies if it needs to spend more money this winter helping the elderly and needy with higher fuel costs.

British Gas

As Cameron made his announcement, shares in Centrica Plc, the U.K.’s largest household energy supplier and the owner of British Gas, fell to 360 pence from 364 pence in London while SSE Plc, whose brands include Southern Electric, declined to 1426 pence from 1438 pence.

The four other major energy suppliers are EDF Energy Plc, EON SE, Iberdrola SA’s Scottish Power Ltd. and RWE AG’s Npower unit. Executives from all six have been summoned to appear before the House of Commons Energy Committee next week to explain the price increases.

Opposition leader Ed Miliband said last month his Labour Party would freeze energy prices if it wins the next general election in 2015. Labour also announced plans to break up the Big Six and force them to trade all their electricity on the open market.

In clashes in the House of Commons today, Cameron accused Miliband of being a “con man” over the proposals. Speaker John Bercow rebuked the premier for his use of the words.

‘Broken’ Market

Cameron is “panicking over his failure to address soaring energy bills but still standing shoulder to shoulder with the big energy companies,” Labour’s energy spokeswoman, Caroline Flint, said in an e-mailed statement. “People are seeing the cost of heating their home rising by 10 percent right now and all he offered was yet another review of a market that everyone knows is broken.”

Cameron’s announcement is “an important step in cutting real energy costs now and giving customers confidence that they are paying the right amount for their energy in the future,” Npower Chief Executive Office Paul Massara said in an e-mailed statement.

“A balanced audit of competition in the market should be a useful additional step towards building customers’ trust,” Perth, Scotland-based SSE’s managing director of corporate affairs, Alan Young, said by e-mail.

Dividend Cut

Earlier today, Iberdrola, which is based in Bilbao, Spain, said regulatory measures in that country and the U.K. undermined profit and would probably prompt it to cut its next dividend.

Cameron’s remarks on reducing green levies threaten to open up a new battle with his coalition partners, the Liberal Democrats, who oppose eliminating such taxes.

Gray later told reporters that the coalition government was examining green levies in the runup to Chancellor of the Exchequer George Osborne’s end-of-year statement to Parliament on Dec. 4.

A spokesman for the Liberal Democrats, who also declined to be named in line with policy, said the junior coalition party is prepared to look at measures to bring down energy prices, though it hasn’t seen any concrete proposals. Nick Clegg, the Liberal Democrat leader and deputy prime minister, was only told of Cameron’s intention to announce the policy half an hour before the premier did so, the spokesman told reporters.

Cameron’s Conservatives argue that if there is no policy change by 2020, green levies may rise to 194 pounds ($313) a year from the current 112 pounds -- or 14 percent of the typical household bill. Labour said that of the 112 pounds, 67 pounds of levies had been introduced under the current government.

“Energy suppliers like npower only control 16 percent of the total cost of a typical household energy bill, 23 percent is controlled by network monopolies, and 15 percent comes from Government interventions,” Massara said. “A good next step would be for these portions to receive equal scrutiny.”

To contact the reporter on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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