Britain’s ‘Big Six’ utilities would be broken up under Conservative government – report
30 November 2009 – The British Conservative party plans to break up the ‘Big Six’ utilities in an attempt to increase competition and reduce customers’ bills, according to a newspaper report.

The Guardian said that Greg Clark, the shadow secretary for energy and climate change, wants to introduce rules to force the ‘Big Six’ – British Gas, Scottish & Southern Energy, RWE npower, EDF Energy, Iberdrola Scottish Power and E.ON UK – to divest the bulk of their power plants to allow new entrants into the market.
 

The ‘Big Six’ control the production and supply of electricity and gas to almost all UK households and businesses. Only a handful of small independent power plant operators and tiny suppliers survive. Energy analysts say the market dominance by the ‘Big Six’ makes it impossible for anyone else to gain a foothold.

Clark is understood to be pushing for the proposals to be included in the Conservatives’ new policy paper on energy, which will probably by published by the end of the year and will feed into the party’s general election manifesto.

The policy paper will also promise that if a Conservative government were elected next summer, it would ask the Competition Commission to investigate whether consumers’ gas and electricity bills are too high.

It is not clear how much support Clark has within the party for his radical break-up plan, reported the Guardian. But such an aggressive stance from a senior figure in the shadow cabinet shows that the Conservatives are intent on a shake-up of the energy industry.

One industry source said the party felt they had “unfinished business” from 1997, when there were more than a dozen independent power generating and supplier companies in the UK.

The six will fiercely resist any break-up plan. One company warned that only they had deep enough pockets to make the estimated £200bn investment to replace the UK’s ageing energy infrastructure and meet renewable energy targets.

One way round this would be to regulate consumers’ electricity and gas bills, linking them to wholesale energy prices. This would encourage other players to build power plants as fixing bills would guarantee them a return on their investment.

Industry sources also claimed that investment would be halted during the course of any review by the Competition Commission, which could last four years. The Energy Retail Association, which represents energy suppliers, said: “Nobody wants a prolonged period of uncertainty when about £200bn of investment is needed to improve Britain’s energy infrastructure for the future.”

The Conservatives say they would ask for a limited review that would take less time.

Consumer Focus said the Competition Commission should investigate whether allowing the ‘Big Six’ to dominate the market resulted in higher utility bills for customers.

The ‘Big Six’ are all vertically integrated, which means they own power plants and source the gas themselves to supply their own customers. This means they will always be profitable at a group level because their retail businesses subsidise their power plant arms when generating costs are high and vice-versa.

As a result, companies have not fully passed on the recent falls in wholesale energy prices to consumers. The companies argue they need to keep profits high to invest in new energy infrastructure, but do not say by how much.

More than 100 MPs have signed an early day motion calling for a Competition Commission review of the industry, which is backed by Consumer Focus.

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