Ofgem’s interim chief executive Andrew Wright has responded to claims by the Labour Party that the “Big Six” power companies have overcharged consumers by more than £3.8 billion over the past three years.
Shadow Energy Secretary Caroline Flint accused the largest companies which together supply 98% of British homes, of buying wholesale electricity at more than the market price. She said:
“Energy companies always blame wholesale costs when they put up bills, but it now looks like they’ve deliberately inflated prices to boost profits from their power stations.
“The regulator Ofgem has serious questions to answer about why it has failed to monitor the way in which companies have bought electricity from themselves and why it has allowed these companies to overcharge their customers.”
Her comments led to a war of words between the regulator, the media and the opposition, with Wright writing to the editors of The Sun, The Daily Mirror and the Daily Record newspapers, arguing their reports that “Ofgem does not know whether energy consumers are being ripped off or not are completely untrue.”
Wright added:“We continually check on the link between wholesale and retail prices, and our own analysis has found no evidence to support this allegation.
“When companies break the rules we also take strong action. Since 2010 we have imposed over £75 million of penalties and redress payments on the industry and we continue to work to ensure the energy market is simpler, clearer and fairer for consumers.”
In a statement, an Ofgem spokesperson added:
“Ofgem has not seen the details of the Labour Party’s analysis that forms the basis of its allegations that consumers have been overcharged for their energy. We would clearly consider more detailed information as part of our state of the market report in March.”
Shadow Energy Minister Tom Greatrex said: “It is just not good enough for Ofgem to say it doesn’t know whether consumers are being overcharged – it’s the regulator’s job to know.
“There is now clear evidence which suggests that all the big energy companies have been buying electricity at above the market price. Today’s revelations show why we need a tough new regulator and reforms to the energy market to stop these firms from overcharging.”
Trade body Energy UK defended the industry. It said: “Currently too many numbers are being used in a confused manner. Energy suppliers pay the most competitive price they can for the gas and electricity they purchase.
“The overall costs of wholesale energy, published by Ofgem from the segmented accounts it gets from the large energy companies, include a number of costs so are not purely market prices. Also, as suppliers buy their energy ahead so it’s there when customers want and need it, averages in this area don’t give the true picture.”
Consultancy Cornwall Energy said although Labour was right to “ask the question” it argued that the latest attack on the Big Six was “overly simplistic and misleading.”
“Overall though it is hard to avoid the impression that Labour needs to try harder to test its assumptions and assertions before it makes them. So far a large number of them have been very easy to challenge, and some are just plain wrong,” it said in its response.