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Last Updated: Tuesday, 15 November 2005, 16:28 GMT
EU threatens action on gas prices
Gas rig
North Sea gas supplies have been falling.
The European Commission has threatened to take action to free up the European wholesale markets for gas and electricity.

It said it had found a lack of competition and other serious problems.

The Commission blamed this mainly on the dominance of supplies by a few national gas and electricity companies.

Its investigation started this summer after UK energy companies complained they were being forced to buy wholesale gas at excessively high prices.

Gas and electricity prices continue to be concentrated, creating scope for operators to influence prices
European Commission

Since the start of 2003 the wholesale price of gas has doubled.

As a result households in the UK have seen their gas prices rise by about 40% in the same period.

And with gas used to produce about 40% of the UK's electricity output there has been a big knock-on effect on electricity users as well.

UK energy suppliers have blamed this situation on the fact that they have been importing increasing quantities of gas from the continent.

This has been partly because of ever increasing demand from UK users and partly because of declining output from the UK's own North Sea gas fields.

Stamped out

The UK's own energy regulator Ofgem investigated spikes in the price of gas that took place in October 2003.

Our consumers and businesses are paying a high price for the lack of competition in most continental energy markets
Ofgem

Its report, published in 2004, did not find any evidence of anti-competitive behaviour.

But it did point to problems with the transportation of gas across Europe to the UK.

Today, Ofgem's chairman Sir John Mogg demanded urgent action by the European Commission:

"Our consumers and businesses are paying a high price for the lack of competition in most continental energy markets," he said.

"This is why anti-competitive practices must be stamped out and effective rules of the game introduced and properly policed."

Problems identified

The preliminary results of the Commission's investigation say there are a number of ways in which European energy companies strangle competition and keep prices high.

  • Energy markets in many European countries are dominated by national or regional monopolies, often involved in production, transportation and supply
  • These companies, some state owned, strike private long term deals to supply each other with gas
  • The contracts they strike hinder the ability of other companies to ship gas across national boundaries
  • The wholesale markets for gas and electricity are opaque
  • The wholesale price of gas on the continent is still, for historical reasons, linked to oil prices - unlike in the UK.

The Commission doesn't use phrases such as "rigging the market" or "price fixing".

But it does say that "gas and electricity prices in many member states continue to be concentrated, creating scope for incumbent operators to influence prices".

Remedies

The European Commission is continuing its inquiry and will now decide what to do.

It threatened to take action against energy companies, using its powers to ban restrictive business practices and abuse of any dominant market position.

Speaking on BBC Radio 4, Mark Clare, the managing director of Britsh Gas, demanded change:

"We need access to the European infrastructure, their networks. Liberalisation has not succeeded yet."

"As a result UK customers are paying substantially more - as much as 10bn a year," he said.

In theory the Commission could fine offenders up to 10% of their annual turnover or even demand they be broken up.

The final results of the inquiry will be published in the second half of 2006.




SEE ALSO:
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Britain facing large energy gap
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Gas pipeline doubles UK imports
08 Nov 05 |  Norfolk
Firms to lobby EU over gas prices
17 Oct 05 |  Business
Does switching still save cash?
15 Sep 05 |  Business
Ofgem exposes gas supply problems
05 Oct 04 |  Business


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