'Price Freeze' Threat for U.K. Power Giants

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) - The U.K.'s energy sector has lashed out against political promises by the Labour Party to freeze gas and electricity prices for 20 months if it wins the next government elections in 2015.

Labour leader Ed Miliband claimed that energy companies have been overcharging consumers for too long and that a 'price freeze' would help to improve people's standard of living if his party comes to power in May 2015. Labour is currently ahead in the opinion polls against the ruling Conservative party.

"The next Labour government will freeze gas and electricity prices until the start of 2017," Miliband told the autumn Labour conference. "Your bills will be frozen, benefitting millions of families and millions of businesses. That is what I mean by a government that fights for you. That's what I mean when I say: Britain can do better than this. "The [utility] companies won't like it because it will cost them money. But they have been overcharging people for so long because the market does not work. And we need to press the reset button."

Labour estimates that people have paid almost €4.7 billion ($6.3 billion) more than they needed for electricity and gas since 2010. A price freeze could cost energy companies in the region of €5.3 billion ($7.2 billion).

Energy UK, which represents the energy industry, hit back at the proposed price freeze by saying that it would undermine investment in new energy projects and put many jobs at risk.

"Freezing the bill may be superficially attractive, but it will also freeze the money to build and renew power stations, freeze the jobs and livelihoods of the 600,000 plus people dependent on the energy industry and make the prospect of energy shortages a reality, pushing up the prices for everyone," countered Angela Knight, Chief Executive of Energy UK. "No other industry is facing the investment challenge of the energy sector. Last year alone the energy industry invested £11.6bn -- the equivalent of building the Olympic stadium twenty times over. We need to invest £110bn over the next ten years to build and renew the power stations, the wires and the pipes everyone in the country needs to keep the lights on, our homes warm and to supply the power for British business to compete, to recover and to grow."

Centrica plc (OTC:CPYYY) (Windsor, England), one of the U.K.'s largest energy companies, said the freeze would be the ruin of many companies.

"Centrica understands fully the concerns about energy prices and is deeply conscious of their impact on household budgets," it stated. "The fact is that the rise in prices over the last five years has been due to three factors -- higher commodity costs where Centrica has to compete to buy gas in a global market; increases in regulated transportation and distribution charges; and environmental costs and taxes. If prices were to be controlled against a background of rising costs it would simply not be economically viable for Centrica, or indeed any other energy supplier, to continue to operate."

RWE npower claimed: "It's very easy for politicians to come up with simple-sounding solutions to difficult problems. But in reality there are three main factors that influence prices: fixing inefficient housing stock, the investment required to replace the UK's energy infrastructure and the cost of buying energy on the global market".

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