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Energy chiefs made to justify price rises to MPs Energy chiefs made to justify price rises to MPs
(35 minutes later)
MPs have started to question the bosses of the UK's six biggest energy companies.MPs have started to question the bosses of the UK's six biggest energy companies.
They have been called in front of the Energy and Climate Change Committee (ECCC), to justify recent price rises.They have been called in front of the Energy and Climate Change Committee (ECCC), to justify recent price rises.
So far, four companies have announced increases that average 9.1%, with the others expected to follow suit.So far, four companies have announced increases that average 9.1%, with the others expected to follow suit.
The four firms involved have insisted that the rises were largely due to increasing wholesale prices.The four firms involved have insisted that the rises were largely due to increasing wholesale prices.
William Morris, the managing director of SSE, told MPs that his firm had faced a 4% increase in wholesale costs over the last year.
He said the cost of transporting energy to homes had risen 10%, and the cost of government and environmental schemes had risen 13%.
But the regulator, Ofgem, has argued that wholesale prices have risen by less than the rate of inflation.But the regulator, Ofgem, has argued that wholesale prices have risen by less than the rate of inflation.
Its data suggests that wholesale electricity and gas together have risen by just 1.7% over the last year.Its data suggests that wholesale electricity and gas together have risen by just 1.7% over the last year.
It estimates the net effect of wholesale gas prices on a household bill should be just £10 extra on a bill of £600.It estimates the net effect of wholesale gas prices on a household bill should be just £10 extra on a bill of £600.
Further rises Stephen Fitzpatrick, the managing director of Ovo Energy, told MPs that wholesale prices paid by his company were actually falling.
However, the energy companies have argued that wholesale prices have gone up much faster than Ofgem maintains. "I can't explain any of these price rises," he said.
Most companies try to reduce risk by buying wholesale gas on the futures market, a process known as hedging.
Many will buy up to two years in advance.
British Gas has said that wholesale costs rose by 18% over the last two years.
It has also been critical of the way in which Ofgem calculates the increases.
However, Ofgem has admitted that wholesale prices are due to rise significantly this winter.
It expects the wholesale price of gas to rise 8%, and electricity to rise 13%, putting further pressure on bills.
Under new Ofgem proposals, the big six energy companies will have to announce exactly how much they pay for wholesale gas or electricity, up to two years in advance.
The companies have also blamed the rising cost of transmission, and green energy levies, for the recent price rises.
TransparencyTransparency
MPs also asked the energy bosses whether they were buying energy from different parts of their own business, and so inflating prices.
Most of them have a separate generation business, as well as a retail business.
Guy Johnson, the external affairs director of npower, denied that was the case.
So too did Tony Cocker, the chief executive of E.On.
"There is no cross-subsidy between the two businesses. We operate them as stand-alone businesses," he said.
MPs on the Energy Committee also want to know how the transparency of the energy companies' finances can be improved.MPs on the Energy Committee also want to know how the transparency of the energy companies' finances can be improved.
"They are distrusted," said Tim Yeo, the former Conservative chairman of the ECCC."They are distrusted," said Tim Yeo, the former Conservative chairman of the ECCC.
"They've got to be more open about their costs," he told the BBC."They've got to be more open about their costs," he told the BBC.
In a letter to the committee, Ian Peters, the managing director of energy at British Gas, admitted that there was further work to do on that.In a letter to the committee, Ian Peters, the managing director of energy at British Gas, admitted that there was further work to do on that.
Later this week, Energy Secretary Ed Davey is expected to set out further details of the annual competition test for the energy market.Later this week, Energy Secretary Ed Davey is expected to set out further details of the annual competition test for the energy market.
The review will be carried out by Ofgem in conjunction with the Office of Fair Trading (OFT) and the new Competition and Markets Authority (CMA).The review will be carried out by Ofgem in conjunction with the Office of Fair Trading (OFT) and the new Competition and Markets Authority (CMA).
The government has also said it will look at the contribution made to energy bills by the green levies, although these make up a relatively small part of overall costs.The government has also said it will look at the contribution made to energy bills by the green levies, although these make up a relatively small part of overall costs.
Labour said it would freeze energy bills for a period of 20 months, if it wins the next election.Labour said it would freeze energy bills for a period of 20 months, if it wins the next election.
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