Energy Firms Allege They Have Been Asked To Freeze Prices By The Government

Months after howls of derision met the Labour Party’s pledge to set a hold on energy bills for twenty months if they win the next election, the Conservative-led coalition has been embarrassed by suggestions that they have asked the main six energy providers to not put up their prices any more until the middle of 2015 – as long as there aren’t any large increases in the costs of buying fuel on a wholesale basis.

The request apparently came as part of a wider deal being negotiated with energy firms that are hoped will lower annual household bills by an average of £50, and is believed to be partly motivated by the government’s wish to avoid the accusation of any new price increases being blamed on so-called “green taxes” that are part of existing government levies. Other issues under discussion include the costs of transmitting electricity or gas to homes which currently account for just under a quarter of most households’ dual fuel bills.

It was apparently hoped that, barring a major increase in wholesale costs on the international markets, prices could be held for at least eighteen month, making it more likely that energy costs could be kept steady until the next national elections.

Government sources have been quick to refute the suggestion that they have been asking for these commitments, but a number of energy firms have already said that this was the impression they had got from their discussions.

Labour are on record as saying that they believe that legislation will be the only way to get a control on prices, while the Conservatives seem to prefer to avoid direct confrontation with the UK energy firms.

Angela Knight, the chief executive of Energy UK, the industry body for UK energy firms put the case that the energy companies really only have active control over some eighteen to twenty percent of their bills, while defending their controversial profits by saying that they are only operating at around a five percent profit margin and that they do need to stay profitable if they are to stay in business.

The big bone of contention in discussions is the Energy Company Obligation scheme, also known as ECO, which puts a requirement on firms to help homes become more energy efficient. Other issues cited as driving costs include the Renewables Obligation and the Carbon Price Floor. These are all seen as factors limiting energy firms’ profitability and, by their argument, their ability to be more flexible in the cost savings that can be passed on to consumers.

The Chancellor’s Autumn Statement is widely expected to include a relaxation of the ECO measures to double the period across which costs can be spread from twenty seven months to four years, although the energy firms argue that this is merely putting off the costs rather than removing the obligation.

With winter starting to show it’s teeth, the price of energy is going to continue to be a hot topic both on the business front and as a political football. Both sides of the political divide seem to agree that something must be done, but the debate over negotiation versus legislation seems set to continue to drive a bitter wedge between both sides of the House.