Labour's energy price cap unwise, says OECD chief

http://www.theguardian.com/business/2013/dec/09/labour-energy-price-cap-deter-investment-oecd

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Labour's plan to freeze energy bills after the election has been branded unwise by the head of the Organisation for Economic Co-operation and Development.

In an interview being broadcast on Panorama on BBC1 on Monday night, the OECD secretary-general, Ángel Gurría, said that preventing firms from raising their prices for almost two years would be a major deterrent for investment.

His comments will reinforce Tory claims that the promise, which has proved popular and tactically successful since it was unveiled by Ed Miliband at the Labour conference, is economically unsound.

Miliband said that Labour would freeze energy bills for 20 months after the general election to allow the party time to pass legislation restructuring the energy market. Labour says that when the freeze is lifted at the start of 2017, consumers will by then be protected by more efficient competition in the market.

But Gurría said the party's policy could lead to energy companies being crippled by rising wholesale prices. "If you freeze the price of energy and the international price of energy rises, it means there's going to be a very big difference to pay," he said. "Who's going to pay the difference? Well, are you going to ask the investors to take the difference? Well, you know they'll probably go bankrupt. How are you going to get people to come in and invest to get their money back in 30, 40 years' time, when you are saying there's going to be a freeze? I think this is simply not consistent, not economically objective."

Interviewed on the same programme, npower's chief executive, Paul Massara, rejected the claim – central to Labour's case – that the energy companies have been profiteering. "We've had lots of speculation and, quite frankly, wild talk without people looking at the facts – and the facts are that we lost money in the retail business in 2009, 2010 and 2011," he said.

"In [2012] we made about a 3.5% margin. That is hardly excessive. Unfortunately, the political dialogue right now means that with rising bills they want someone to blame and the suppliers are the easiest thing to shoot at."

Massara also claimed there was so little spare capacity in the industry that there could be power shortages next year. "The amount of spare generation that is around at the peak day has gone down from about 15% to, this winter, we'll be about 5%, and I think next winter will be even smaller," he said. "So will we get through this winter? Yes. Will we get through next winter? I don't know."

Caroline Flint, the shadow energy secretary, said Labour's proposals would give customers "trust and confidence" in the market. Wholesale prices dropped substantially in 2009, she said, but this was never passed on to consumers.

In an interview on the BBC's Andrew Marr show on Sunday Vincent de Rivaz, chief executive of EDF Energy, said that energy bills were "hurting" customers and that it was not enough for the industry to say nothing could be done. "We should join forces [with government] to bear down on costs," he said.

But on Sunday the chairman of Centrica, Sir Roger Carr, hit out at critics of the "Big Six" energy companies, saying that ill-judged attacks would put off investors and that it was time to end what he called the "Punch and Judy" debate.

As figures showed up to £11bn had been wiped off the value of energy stocks in two months, Carr told the Telegraph that any attempt to enforce price caps was illogical and would be a threat to the "financial fabric" of the energy companies.

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