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Monday, 11 December, 2000, 18:40 GMT
Power trade left 'open to abuse'
Callum McCarthy, director general, Ofgem
Callum McCarthy: "Deeply disappointed"
Trade watchdogs have opened the door to higher electricity bills by quashing attempts to control power generators, the energy regulator has warned.


Ofgem continues to believe that there is the potential for abuse of market power by generators

Callum McCarthy, director general, Ofgem

The regulator, Ofgem, warned on Monday that a decision to overrule his efforts to ensure 'fairplay' among electricity generators was "to the detriment of consumers".

Ofgem director general Callum McCarthy said he was "deeply disappointed" at the decision, by the Competition Commission, that safeguards he proposed against market manipulation were unnecessary.

"Ofgem continues to believe that there is the potential for abuse of market power by generators," Mr McCarthy said.

The decision would bring about a "substantial loss of measures needed by Ofgem to do our job", he added.

The warning comes a week after Mr McCarthy predicted that household gas bills are set to rise.

Generators' objections

The Competition Commission probe followed a refusal by two generators, British Energy and AEL, to accept clauses curbing their ability to alter their electricity output.

Generators which accepted the 'fairplay' clause
BNFL
Magnox Electric
Edison Mission Energy
PowerGen
Innogy
TXU Europe
London Electricity

The rules, which the firms said deterred "normal competitive behaviour", had been accepted by seven rival firms.

The high demand for power is such that in July a decision by Edison Mission Energy, which produces about 10% of UK electricity, to close down part of capacity for two months led to price increases of 100m.

Although Edison has maintained it was not attempting to manipulate the market, by prompting a rise in the price of the rest of the electricity it was producing, this undertaking has not been accepted by Mr McCarthy.

"He has gone on the record as saying he would have fined the company if he had had the powers," an Ofgem spokesman told BBC News Online.

New market

A statement from the commission pointed to the launch next year of a free electricity market, which is expected to reduce by 10-20% the amount generators receive for power from the firms which distribute it to homes and businesses.

The opportunities for firms to abuse the new market, Neta, are "likely to be substantially less", the commission said.

But it admitted that, because of "uncertainties" over Neta it could not "form a clear expectation" of the likelihood of market abuse.

And a delay in the launch of Neta, set to begin in March, would give British Energy the chance to profit from "strategic capacity withdrawal" in the summer, the commissioned admitted.

Ofgem was on Monday unable to confirm that Neta's launch would stay to schedule.

"We hope it will be launched on 27 March," the Ofgem spokesman told BBC News Online. "It has already suffered one delay, from November."

Businesses worst hit

Ofgem fears attempts by generators to raise electricity prices would hit business customers in particular.


Because domestic bills are more tightly regulated, it is businesses who feel the pinch

Ofgem spokesman

"The price rise means distributors have to pay more for electricity and they in turn pass that rise on to the end customers," the Ofgem spokesman said.

"Because domestic bills are more tightly regulated, it is businesses who feel the pinch."

The inefficiency of the market is demonstrated by the inability of price decreases to feed through to consumers.

"Over the last 10 years, generation costs have fallen by 50%, Not much of those savings have been passed on to the consumer," he said.

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