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Big Six Energy Groups To Defy Price Cut Call

(c) Sky News 2015
 

Some of Britain's biggest energy retailers are expected to rule out price cuts ahead of the General Election amid an intensifying political row over Labour's vow to impose a 20-month price freeze.

Sky News has learnt that a number of major suppliers will tell ministers in the coming weeks that the time horizons over which they set tariffs render a pre-election cut "illogical and impractical" despite the falling oil price and declining cost of wholesale gas.

They plan to respond to a letter from Matthew Hancock, the Business, Energy and Enterprise Minister, who wrote to the six companies this weekend to demand that prices should be slashed.

"Wholesale gas prices have been falling for months, and are now 30% lower than this time last year," he wrote.

"In a competitive market, I would have expected energy suppliers to cut bills as a result of these low wholesale prices.

"Independent suppliers have done precisely this. However, larger energy suppliers have failed to cut prices across all their tariffs?"

The six firms which dominate the residential supply of energy - British Gas, which is owned by Centrica; EDF Energy; EON; Npower; Scottish Power; and SSE - argue privately that a pledge by Ed Miliband to freeze prices if Labour wins May's election has made it commercially risky to cut prices.

"We are taking pricing decisions now that may have to last for two years," an executive at one of the companies said.

"Anything could happen to wholesale prices during that period which would make supplying energy at lower levels than today wholly uneconomic."

The companies have been summoned for talks with Mr Hancock, who also ordered them to explain whether their fuel-hedging strategies, which protect them against sharp changes in wholesale costs, were a factor in preventing them from cutting prices now.

In his letter, he insisted that he did not want to interfere with a competition investigation into the energy sector, which is expected to report its provisional findings in June.

However, Mr Hancock said that the 'Big Six' needed to explain the lack of action on pricing in order "to maintain market confidence".

Speaking to Sky News, Mr Hancock said Labour's policy was "already an embarrassment".

"The evidence increasingly shows the threat of Labour's high price freeze is responsible for higher household bills now. If that's the case, they should abandon it immediately.

"Hardworking households must feel the benefits of lower gas prices and we cannot let the threat of Ed Miliband stand in the way."

Downing Street sources said on Saturday that Mr Hancock's letter had been approved by both the Prime Minister and the Chancellor.

George Osborne this week vowed to watch utilities and fuel retailers "like a hawk" to ensure that the benefits of lower oil prices were being passed on to consumers.

The intervention of senior ministers over the issue in recent days underlines the extent to which the cost of living will be a central plank of the looming election campaign.

Energy company executives pointed, however, to regulatory requirements which meant that gas and electricity had to be sold under contracts of at least 12 months, with customers informed of prices in advance.

"When the natural gas price soared in 2010, consumer prices were able to be maintained because the cost to companies was already locked in," said one.

"Industry profit margins are around 5%. If the price of oil and wholesale gas remain where they are now for a sustained period, we will be able to pass that on over time."

A director of another of the major suppliers added that wholesale costs accounted for only 50% of consumers' bills, with network costs and those associated with environmental obligations expected to rise, rather than fall, during 2015.

None of the companies contacted by Sky News would comment officially on Mr Hancock's letter.