Energy companies face second probe as poorer families are charged £300 more


Last updated at 15:17 06 March 2008

The energy regulator today announced a second major investigation into the UK's gas and electricity industry.

Ofgem is to investigate the 20-year-old regime regulating the gas and electricity networks.

The two-year review will examine whether customers can expect to receive value for money amid "growing investment challenges" being faced by energy providers.

This latest probe is separate from the Ofgem investigation announced last month to check for any evidence of anti-competitive behaviour by gas and electricity suppliers in the wake of major price rises this year from five of the UK's “big six”.

It also comes on the day the industry watchdog said pensioners and poorer families were being charged up to £330 a year more for domestic energy supplies.

Announcing the new probe, Ofgem said challenges facing energy providers included green targets set by the Government for 2020, proposals for more power supply link-ups across Europe and a growth in gas imports.

Ofgem has estimated that new measures to combat climate change are adding around £60 a year to average household fuel bills.

Chief executive Alistair Buchanan said: "We need to know that the regime can continue to promote innovation from the companies at the level that is required for the future."

The probe will also look at the relationship between retail and wholesale prices.

UK gas and electricity firms have blamed the recent bill hikes - as high as 19% for some households - on soaring wholesale costs. They also cited rising distribution costs and regulation costs.

Earlier today independent industry watchdog Energywatch revealed that pensioners and poorer families are being charged up to £330 a year more for gas and electricity.

Energy rates for pre-payment meters - typically installed in the homes of low income customers such as pensioners and students - are up to 45 per cent higher than for internet customers.

Energywatch said the practice meant the poor were paying an extra £400 million for their gas and electricity.

More than four million households are currently in fuel poverty - spending more than 10 per cent of their disposable income on gas and electricity.

This means they sometimes have to make a nightmare choice between heating and eating. Charities fear that spiralling power bills can be a matter of life and death for the elderly.

The problem is getting worse after firms announced further rises of up to 27 per cent in energy bills.

Last month, British Gas angered many consumers after announcing a 570 per cent surge in profits to a record £640 million just weeks after hiking bills by 15 per cent.

British Gas is just one of the “big six” companies which saw their profits increase sharply last year.

Figures compiled by Energywatch show that on average, prepayment customers now pay £255 a year more for power than internet buyers, compared with £190 before Christmas.

As a result, speculation is growing that Chancellor Alistair Darling will use his first Budget next week to reveal moves to cut energy bills for poorer customers.

All the “big six” power firms - which include E.ON, British Gas and nPower - operate social tariffs, which should ensure that the elderly and poor can afford to stay warm.

At present, the discounts work in a variety of ways. They are only offered as an option, which many vulnerable customers do not know about or are too proud to request.

Labour is under pressure to deal with fuel poverty after pledging to eradicate the problem by 2016.

Energy giants have been meeting Government officials in the run-up to the Budget next week to discuss options to help poorer households.

It has been reported that if the energy giants refuse to cooperate, the Government may impose a supplementary windfall tax.

Graham Kerr, of Energywatch, said last night: "We have hard evidence of £400 million of excess profits being taken off the poorest members of society just at a time when fuel poverty is continuing to rise.

"Instead of taking from the rich to give to the poor, it seems that energy companies are taking from the poor to give to the rich."

There is a £328 annual difference between E.ON's average annual prepayment charge of £1,097, which is 43 per cent higher than its online tariff of £769.

NPower charges its prepayment customers 42 per cent more, while British Gas hikes its tariff by 30 per cent.

A spokesman for E.ON said last night: "The cost of prepayment meters are more expensive and we are currently looking at a major meter replacement programme. I don't think it is 100 per cent fair to compare prepayment with online."

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