Utility Week

UTILITY Week 20th March 2015

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UTILITY WEEK | 20TH - 26TH MARCH 2015 | 9 E L E CT I O N C O U N TD O W N : 4 8 D AY S TO G O In partnership with: Next week: Infrastructure and planning L abour's promise to cut energy bills should Ed Miliband take the keys to Number 10 is not actually a promise to cut energy bills. It is everything but. Nor is the price freeze a freeze. And it is not a traditional cap – say in the same way that a mortgage is capped. Behind the headlines of Labour's energy pledge, there are reforms, and it is these reforms that the party hopes will deliver the promises. Last week, the Labour leader gave delegates at a rally in Birmingham the impression he would force prices down. What Labour is actually pro- posing is to give the regulator – which will still be Ofgem at this point – the power and the duty to pass on the benefits of lower wholesales costs. One Labour aide told Utility Week: "It will be entirely up to the regulator, which is entirely independent." He said the key announcement from Miliband and shadow energy secretary Caroline Flint is the time- table. Prices would fall – should the regulator so decide – by the winter. The reason Labour is so confident that this power will result in the everything-but-a-promise of falling bills is what the wholesale market has done over the past 15 months. Wholesale gas prices have fallen by 20 per cent, and wholesale electric- ity prices by 17 per cent. Flint told Utility Week: "Ofgem has confirmed there is evidence that falling whole- sale costs have not been passed on." Labour wants its policy to do this and will take the credit for it – should it happen. Alongside the promise to cut bills that isn't actually a promise to cut bills, is the freeze that's not a freeze. It's a cap, though not actually a cap but some sort of hybrid frozen cap. Flint says Labour has always made it clear the freeze is a cap, that should Miliband become prime minister, bills will not be allowed to rise until 2017. But rather than a cap where there is a ceiling above which prices cannot rise, the Labour frozen cap will allow only downward movement. Should wholesale prices rise aer a fall, which Ofgem will be duty bound to force the suppliers to pass on, they will not be able to put their prices up to account for the higher costs. This will "correct what has not been right in the past". The promise of a freeze was popular when public wisdom was that prices were only going up. Now with prices set to continue falling, the new message promising bill cuts without the threat of them rocketing back up, is one Miliband hopes will win votes. It will not win him many fans among the energy suppliers faced with a profit squeeze and the threat of being forced to sell energy at a loss Reaction to Labour: "Competition is at an all-time high; new deals for customers are over £100 cheaper than this time last year. The best way for people to save money on their energy bills is to do what 317,000 did in Febru- ary – switch." Energy UK chief executive Lawrence Slade "Our analysis suggests standard variable energy tariffs have not kept in line with wholesale prices over the past two years. The failure of retail prices to align with wholesale costs meant an annual equiva- lent of £145 extra per household on standard energy tariffs." Which? executive director Richard Lloyd The five green laws outlined by the Lib Dems in September last year were for- mally adopted by the party last weekend. 1. A zero carbon bill. Unabated coal generation will be banned by 2025 and a binding decarbonisa- tion target set for the power sector for 2030. The Green Investment Bank will get full bor- rowing powers (also a Labour promise). 2. A green homes bill. People who improve the energy efficiency of their homes will get council tax discounts of up to £100 a year. 3. A green transport bill. Only low emis- sion vehicles will be allowed on the roads from 2040. 4. A nature bill, setting legally binding targets for biodiversity, clean air, clean water and access to green space 5. A zero waste bill. Lib Dem 5 green pledges "Protecting the environ- ment is in the Lib Dems' DNA". Energy secretary Ed Davey A promise is a promise, right? Cuts, caps, freezes – it all sounds dramatic. But is it? By Mathew Beech. Analysis Promise number two on Labour's five-pledge card is to freeze energy bills until 2017 (and to scrap Ofgem), so shadow energy secretary Caroline Flint is in the vanguard of the election campaign. Is it a freeze or a cap? "Freeze. It is a freeze. A freeze against rising prices." A number of suppliers have said they will suffer as a result of the freeze. Is it a case of 'no pain, no gain'? "I don't think it is about suffering. It is about fairness. The whole point of the price freeze is to give us 20 months to reform the energy market. The price freeze was never going to popular with a number of companies in this sec- tor, but this is about trying to do what is right and to get the sector to a better place." What is to stop the companies ramping up their charges before the freeze? "We will give a backstop power to the regulator to make sure that if wholesale costs fall, and if that is not passed on to consumers, the regulator will have the power to do that." So if you're giving Ofgem more powers, do you still plan to scrap it? "Yes. I don't think Ofgem in its current form is really fit for what we need a regulator to do for this sector over the next 50 years. We need to establish in the public's mind there has been a real sea change, that there has been a real change." Read the interview with Caroline Flint in full in next week's issue Five minutes with… Caroline Flint

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