MPs warn of energy price impact

Ofgem should remain watchful over competition, says the report

Rises in gas and electricity bills in the near future will have serious consequences for millions of households, an MPs' committee has said.

It also warned that thousands of jobs in manufacturing would be at risk if UK prices stayed higher than those faced by industry in the rest of Europe.

The Business and Enterprise Select Committee report said problems in the sector needed to be addressed urgently.

But it found no evidence that key firms colluded to keep energy prices high.

The committee's report, published on Monday, comes just a few days after EDF Energy became the first big supplier to announce widely-predicted summer price rises.

Competitors

The committee decided on an inquiry after the "big six" energy companies announced double-digit price rises at the start of 2008.

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The big six firms are: Npower, EDF Energy, British Gas, E.On, Scottish Power, and Scottish and Southern Energy.

The report voiced concerns that "the UK's energy markets are not functioning as efficiently as they should".

"Industrial consumers now face prices above European levels," the report added.

"If these price differentials are sustained, they will affect the competitiveness of the UK economy."

'No collusion'

The inquiry addressed the issue of why there was only a very small difference in prices charged by the major suppliers.

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It said that nobody brought any evidence of price collusion among the big six, simply that it was easy for each to predict what the other five were going to do.

"Just because we have found no evidence of collusion does not mean we have given the big six energy companies a clean bill of health - far from it," said committee chairman Peter Luff.

"It is clear that there are very real problems in the energy markets at all levels ... which need to be addressed."

The committee was concerned about how the wholesale markets functioned, including why gas producers appeared unwilling to trade in the forward gas market.

The report was critical of the government for failing to act quickly enough to encourage investment in gas storage, as the UK becomes more dependent on importing gas.

It also warned that the potential takeover of British Energy could undermine the diverse market in electricity generation in Britain.

Fuel poverty

Energy regulator Ofgem, which is conducting its own inquiry into the market, was also criticised, with the committee demanding a "greater sense of urgency" in some areas.

Prices rises by EDF are expected to be replicated by other suppliers

On Friday, EDF raised gas prices by 22% and electricity prices by 17% for domestic and small business customers.

With all the major suppliers expected to follow suit in the coming weeks, the committee said there would be an inevitable increase in fuel poverty.

The government estimates that 2.5 million households are in fuel poverty - defined as when more than 10% of household income is spent on fuel bills - but watchdog Energywatch says the figure is more than four million.

"We believe that the time is right for a root and branch review of government policy on fuel poverty," the committee said.

It said social tariffs failed to reach the vast majority of fuel poor customers, were inconsistent and confusing.

The committee wants the government to define the criteria for these tariffs and identify the customers who should qualify for the discounts.

It also wants more focus on improving energy efficiency in homes, to help cut bills, and called for an reversal of the funding cuts in Warm Front grants.