Newsnet Main Articles
By Martin Kelly
A bitter war of words has erupted between the Labour party and power companies after controversial plans to freeze prices led to claims that power cuts across the UK may result.
The row followed Ed Miliband’s surprise announcement that a new Labour government will prevent energy companies from increasing household bills for 20 months if his party wins the next UK general election.
Yesterday billions were wiped off the value of energy companies as shares plummeted and investors took fright. As the markets reacted to the Labour election pledge, several companies rounded on Mr Miliband accusing the Labour leader of putting energy supplies and investment at risk.
Sir Roger Carr, the Centrica chairman, said: "We are all concerned about rising prices and the impact on consumers, but we also have a very real responsibility that we find supplies to make sure the lights stay on."
In a letter to Mr Miliband, chief executive of E.On, Ted Crocker said that much of what Mr Miliband was demanding was already being carried out.
However, on Labour's threat to bring in short term price controls, the energy chief said: "But the issue that's dominated since your speech, the proposal for an artificial price freeze, is where we disagree.
"An energy bill is made of many different parts. A couple of these, such as the cost of running call centres to help customers and reading their meters, we do control, but the majority are elements that we don't have any say over.
"These include the cost of getting energy to our customers along the pipes and wires, the wholesale energy costs which amount to around half of any given bill and the cost of the political programmes."
He added: "Successive governments have collected taxes for different schemes through energy bills and this has added extra pressure and is a factor in why bills have risen over a sustained period of time.
"All politicians, from all sides, need to acknowledge that fact. At a stroke you could remove a large cost from energy bills simply by moving these costs to general taxation."
An Ofgem report in June claimed that towards the end of 2015/16 there would be just 2% of spare capacity in the UK electricity grid. Critics have claimed that Labour's plans have created uncertainty in the industry that will threaten security of supply and may harm a crucial £150bn worth of investment required for new infrastructure.
There are also claims that the renewables sector, reliant on investment in order to develop economically viable technologies, could also be harmed.
Responding to claims that blackouts could result if investment was stalled, Ed Miliband accused energy companies of "scaremongering" and of having "colluded" in keeping prices high.
He said: "I'm not going to tolerate the energy companies using the fact there's going to be a price freeze to collude in raising prices."
He added: "Of course the energy companies don’t like what I announced yesterday and it doesn’t surprise me. I know this Government will back them and we will hear all the old scare stories,"
However some analysts have predicted that wholesale energy prices will rise on the back of the Labour threats.
Describing Miliband's move as "economic suicide", Steve Hawkes of Consumer Affairs Editor said:
"Energy suppliers won’t be able to raise their prices between 2015 and 2017, that is almost certainly going to mean we see bigger increases before May 2015 and also a huge increase on the 1st January 2017 as energy companies try and make up for this period in which they couldn't charge."
However last night rifts emerged within Labour when former cabinet minister Peter Mandelson questioned the price freeze plan and expressed concern that "perceptions of Labour policy are in danger of being taken backwards".
One of Mr Miliband's key backers in the move against the energy companies is believed to be Scottish MP Jim Murphy.