Source: BBC Radio 4: Today Programme
URL: N/A
Date: 08/06/2011
Event: MP Tim Yeo on energy price rises and environmental targets
People:
Justin Webb: It is surely a basic need in a civilised society that energy can be provided at a cost that ensures everyone can wash and stay reasonably warm. The Institute for Fiscal Studies tells us that the poorest pensioner households cut food spending during very cold weather. That already happens, they say. So things, it seems, can only get worse. Scottish Power are leading the way on the latest round of energy price rises. The hikes planned by Scottish Power - 19% for gas, 10% for electricity - are shocking enough, but around the corner, most people who study these matters think there is plenty more pain to come. Is this high-cost world simply one that we have to learn to live with? Can we ever know for certain that the power companies are playing fair, and is Britain's commitment to carbon reduction the real driver of at least some of the higher prices? Is that commitment, perhaps, unwise? Let us turn first to Robert Peston, our Business Editor, and Robert, just in this round of price rises, what the power companies say - what Scottish Power companies [sic] say is: look, if you look at world wholesale energy prices, prices we have to pay to get this energy and sell it on, they're going up, so there we are.
Robert Peston: Well, it's certainly the case that Britain's power companies are very dependent on gas for electricity generation, as well as, obviously, to supply gas itself to homes. Some people would say the UK is too dependent on gas, and, you know, there is no doubt that the wholesale price of gas has risen very, very sharply in recent months. There is a bit of a mystery about quite why the gas price has risen as much as that. I mean, you know, it's no great secret to any of us that economic growth in much of the West - the US, the UK, the Eurozone - hasn't been fantastically strong, so the fact that gas prices have risen something like 55% on wholesale markets in something like a year is slightly odd. This is not a transparent market, er, and you know, there have long been questions about whether or not that wholesale price is, you know, really reflective of some of the deals these gas companies are doing in terms of longer-term contracts, and also whether it's a fair price, whether it's driven up by speculation.
Justin Webb: Yeah, because what we were told originally, when we first had competition among energy companies, that that competitive process would drive prices down. And, I mean, it just doesn't seem to be working -
Robert Peston: Well, it certainly did drive prices down for consumers through much of the 1990s. You have to separate two issues here, Justin. One is the wholesale price, and there's very little that competition between the likes of EDF or Scottish Power or British Gas, within the UK market, can do to bring the wholesale price down. The question is whether or not, given the nature of the wholesale price, consumers are getting the best deal in terms of retail prices. Now last autumn Ofgem did say that for the first time it had found evidence that gas prices, power company - power companies were moving slightly faster to raise prices for consumers when the wholesale price was rising than they had been cutting those prices for consumers when the wholesale prices had fallen. In other words, you know, they weren't doing enough to you know, shelter, they - they were making a little bit too much profit for themselves from this volatility in wholesale prices. Now it's looking at that issue, it hasn't come to a conclusive view on all of this, but there is a fair amount of evidence, which I'm sure you'll talk to Tim Yeo about, that actually the nature of competition within the British market isn't working in the way that one would want it to.
Justin Webb: Well, that's do exactly that. Tim Yeo - thanks, Robert - Tim Yeo is Chairman of the Energy and Climate Change Select Committee, and the committee's already conducting an inquiry into gas and electricity retail markets, and he's on the line. Good morning, Mr Yeo.
Tim Yeo: Morning, Justin.
Justin Webb: Just on the Scottish Power rises that have caused such amazement and shock, do you believe that those rises are acceptable, reasonable?
Tim Yeo: Well, they haven't provided evidence to show that they are. This is really the heart of the problem, that there's a very strong public suspicion, probably justified, that prices tend to go up faster than they come down. Er, and what we need is clear transparency from the companies to show that the prices they have had to pay in the wholesale market, in the last three or four months, justifies [sic] this enormous increase, and the companies so far have not provided that evidence.
Justin Webb: Why can't we just force them to provide it?
Tim Yeo: Well, I think we may be getting to the point where the government should try and do that. This is -
Justin Webb: So this is - just to make it clear, then - you're saying that Ofgem, at the moment, under the current rules, Ofgem oversee the companies but they don't have the power, perhaps, to force them to provide the timely information that people want to see, and so the government could step in and say: well, this must now happen.
Tim Yeo: Well, Ofgem's remit is under review at the moment, and I think this is one area where it could certainly be strengthened, to the advantage of consumers. They don't have that power at present - they've conducted a whole series of reviews and investigations in the last few years, and recently they have come to the conclusion that there probably is a case to answer for, for the companies here. What I believe we should have now is - what would be best is a voluntary initiative by the companies to say: we will publish, in arrears - we're not asking them to do it in advance - in arrears, the prices that they're paying the wholesale market and relate those to the prices they then charge their retail customers.
Justin Webb: See, Ofgem as well have looked into this business of the ability of consumers to compare prices, haven't they, between companies, and said that at the moment it's way, way too opaque and something needs to be done - but something never is done.
Tim Yeo: Yes, it's clear that although the wholesale market probably operates very efficiently, the retail market, which is the bills that you and I pay every quarter, that is not a completely free market. It's very difficult to make accurate comparisons between the prices, the tariffs charged by one company and another. It's been complicated further, I'm afraid, by evidence of miss-selling as well, by - one company's already been convicted, others are under investigation - for misleading customers on the doorstep -
Justin Webb: Do we have high enough penalties for that?
Tim Yeo: Well, again my committee is considering exactly this point. I think that we've seen what happened to Lloyds Bank, when they were found to be miss-selling payment protection insurance. It may well be that there's a similar scandal taking place in the energy markets, with vulnerable customers being misled by doorstep salesmen.
Justin Webb: What Scottish Power also said is that costly government programmes are partly to blame for the price increases. They say "meeting environmental and social targets" - on environmental targets, I mean, you do wonder whether the enormous amount that we're having to pay to subsidise wind farms to get them off the ground is actually behind a lot of this. A lot of consumers will wonder whether that is, perhaps, money that - you know, slightly better, if people are - this is a serious issue for people, if people are potentially dying of hypothermia as a result of not being able to pay bills, maybe we should think a bit more about protecting people who are currently alive rather than future targets for carbon reductions.
Tim Yeo: Well, at the moment, such a tiny proportion of electricity in this country is generated by renewable sources, such as wind, that -
Justin Webb: You know, a lot of money going towards it -
Tim Yeo: Well, in the future, there may be more money going towards it, certainly, but Scottish Power, I think, are being a bit disingenuous here. The truth is that, at the moment, the amount of money going to renewables is very, very small. It will become greater, it is perfectly true -
Justin Webb: And that will force up prices.
Tim Yeo: Well, it is perfectly true that greener energy, and more secure energy that is sourced within the UK, rather than imported from Russia, is likely to cost more, so the issue about consumer prices is going to get more intense. And one of the factors undoubtedly is the drive, which I fully support, the drive towards more low-carbon electricity.
Justin Webb: Hmm. Tim Yeo, thank you very much. And I should say we did ask the big energy companies and the trade associations to come on, this morning, but they were not available.