Photographer: Jason Alden/Bloomberg

Britain Considers Steps to Rein in Big Six Over Price Rises

  • Ministers said frustrated at spate of increases by utilities
  • EDF price hike follows those by EON, SSE, Innogy, Iberdrola

U.K. Energy Secretary Greg Clark is considering a crackdown this month on utilities after companies made price increases that the government thinks are unjustified and abuse the reluctance of customers to change suppliers.

While no date has yet been set for the move, the second price rise in four months on Wednesday by Electricite de France SA has highlighted the issue, according to an official familiar with Clark’s thinking who asked not to be identified because the policy isn’t public yet.

The government has been ratcheting up the pressure on Britain’s so-called Big Six utilities for months, trying to encourage them to take voluntary measures to rein in gas and power prices for consumers. Clark said a month ago that the “time is up” for the utilities, and Prime Minister Theresa May said on March 17 that the energy market “is manifestly not working.” Since the utilities have failed to heed the warnings, ministers will now publish plans to help rein in price increases, according to the official. 

EDF’s latest price rise “is difficult to justify and is further evidence that the energy market is not working in all consumers’ interests,” Dermot Nolan, chief executive officer of the energy regulator, Ofgem, said in a statement. “Ofgem and the government are working on a raft of reforms to ensure fairer treatment for consumers and to make the market smarter and more competitive. Today’s announcement is further evidence of the need for change.”

2017 Price Hikes

EDF’s decision to raise prices on so-called dual fuel bills by 7.2 percent on June 21 follows another increase announced in December. SSE Plc, Innogy SE’s Npower unit, Iberdrola SA’s ScottishPower business and EON SE have all announced price increase since the start of the year, while only Centrica Plc among the Big Six has frozen prices.

In justifying the latest increase, EDF Energy CEO Vincent de Rivaz said the business needs to make a “fair margin” in order to be able to “invest for the long term.”

The Competition and Markets Authority said in 2015 that Britons overpaid on their bills by 1.2 billion pounds ($1.5 billion) a year from 2009 to 2013 by not changing suppliers. While the government has taken measures to speed up switching and to push utilities into lowering prices by publishing league tables, they’ve failed to stem what Clark has called “unacceptable behavior.”

The official declined to say what specific policy measures will be proposed, but the government has been shuffling options including forcing utilities to move customers onto cheaper default tariffs and further encouraging customers to switch utilities by making the process faster and easier.

Energy utilities have said that because they buy energy on wholesale markets months in advance to lock in costs, their price rises don’t necessarily reflect changes in spot prices. They’ve also sought to pin some of the blame on the costs of government policies -- such as subsidies for renewables and poorer consumers, and the cost of using transmission networks.

Energy U.K., the industry trade association, said on Tuesday that 1.3 million consumers switched utility in the first quarter of 2017, proving the market is working. The statistics are “further demonstration of competition in action in the retail market,” Chief Executive Officer Lawrence Slade said in a statement. “Competition is driving up standards, innovation and investment as suppliers compete to keep and attract new customers.”

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE