LONDON--Facing mounting pressure to ease the strain of rising
energy bills on already hard pressed households, U.K. Prime
Minister David Cameron said Wednesday the government would launch a
review of the energy market looking at competition, prices, profits
and barriers to new entrants in the sector.
And in a sign that the prime minister is willing to risk the
government's environmental credentials and unsettle coalition
relations, Mr. Cameron vowed to roll back green levies--the portion
of household electricity and gas bills that goes towards green
schemes and climate change programs--as well as support for poorer
households.
Energy bills have become the focus of a fierce political battle
over how to tackle the decline in living standards Britons have
faced in recent years as wages have been outpaced by prices. Mr.
Cameron has been under growing pressure to respond after Ed
Miliband, the leader of the center-left opposition Labour Party,
said last month that he would freeze household energy prices for
two years if he wins the general election in 2015.
Adding urgency to the debate, in recent days three of the six
energy firms that dominate the British market have announced hikes
in gas and electricity prices of about 8%-10% and the remainder are
expected to follow suit. The so-called "Big Six" comprise Centrica
PLC (CNA.LN) division British Gas, German RWE AG's (RWE.XE) npower,
Iberdrola SA's (IBE.MC) Scottish Power, SSE PLC (SSE.LN), E.ON AG
(EOAN.XE) and Electricite de France SA (EDF.FR).
Speaking in parliament, Mr. Cameron said household energy bills
had reached unacceptable levels. He said there are four parts to an
energy bill: wholesale energy prices, which are beyond the
government's control; the cost of transmission and the national
grid, which are difficult to change; the profits of energy
companies; and green levies and the cost of meeting other
regulations.
"And it is those last two that we need to get to grips with," he
said. "We will be having a proper competition test carried out over
the next year to get to the bottom of whether this market can be
more competitive. I want more companies, I want better regulation,
I want better deals for consumers--but also yes, we also need to
roll back the green charges."
On Tuesday, former prime minister John Major, who is from Mr.
Cameron's center-right Conservative party, suggested the government
introduce a windfall tax on energy company profits to recover money
lost to rising energy bills. The government said the comments were
interesting but it had no such plan.
Mr. Cameron's aides explained the annual process of review of
the energy market would be carried out by energy sector regulator
Ofgem, consumer and competition watchdog the Office of Fair
Trading, and the government's new Competition and Markets
Authority.
Work would begin in coming weeks with the first report due in
2014, they said. They declined to give details of what the possible
consequences of the review might be, but said nothing could be
ruled out at this stage.
More details about the review will be set out in the
government's annual energy statement presented by Energy secretary
Ed Davey next week, they added.
"It will look across the range of issues that can affect
competition and consumers--prices, profits, barriers to new
entrants...and also how companies work and engage with their
customers," Mr. Cameron's spokesman told reporters.
The review met with a mixed response. EEF, a lobby group for the
manufacturing sector, said it had long pushed for the government to
address the issue of competitiveness in the market.
"This review should be rapid and report back as soon as possible
as the rising cost of energy is acting as a block to investment and
growth for many companies," Terry Scuoler, the chief executive of
EEF, said in a note.
But Friends of the Earth said the best way to protect
cash-strapped households is through a comprehensive energy
efficiency program and ending the nation's dependency on costly
fossil fuels.
Up until now, the government has urged customers to fight rising
energy bills by switching suppliers to find the best deals and it
has pledged to legislate to force energy firms to give customers
the lowest tariff. But commentators say both those ideas were
trumped by Mr. Miliband's price freeze plan which hit the share
price of some of the energy firms when it was announced.
Mr. Cameron's aides said the government would give more details
about green levies in the Autumn Statement, which Treasury chief
George Osborne is due to deliver on Dec. 4. The levies account for
about 9% of average energy bills, or 112 pounds, but they are
expected to rise to about 14% or 194 pounds by 2020, they said.
Efforts to cut these so-called green taxes are likely to put Mr.
Cameron on a collision course with the Liberal Democrats, the
smaller party in the governing coalition, which has defended
them.
Write to Nicholas Winning at nick.winning@wsj.com
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