THE head of British Gas parent company Centrica has warned that a two-year competition investigation into the Big Six companies could put Britain at “increasing risk” of power blackouts as major firms shy away from investment in energy generation projects.
Sam Laidlaw said the decision by energy watchdog Ofgem to refer the sector to the Competition and Markets Authority would prolong the uncertainty for power generators in the industry.
Ofgem said the investigation would “clear the air” and ensure there are no barriers to competition in a bid to improve the sector for consumers.
The regulator – which pointed to the £1.1 billion of profits generated by the Big Six energy providers last year compared to just £233 million in 2009 – also said it would increase the fines it can charge energy companies which break industry rules and claimed it was likely to issue penalties of “tens of millions” to firms which commit offences.
It said its report revealed that 43 per cent of consumers did not trust energy suppliers to be open and transparent in their dealings with them in 2013, compared to 39 per cent in the previous year – which it argued is not consistent with a competitive market.
The report, which will see the industry referred to the Competition and Markets Authority for the first full competition review into the energy sector in the UK, comes just a day after Perth-based energy giant SSE said it would cut back on wind farm projects to help fund a price freeze for consumers until 2016.
In a statement issued in response to the regulator’s report, Mr Laidlaw said: “We hope that a lengthy review process will not damage confidence in the market, when over £100bn of investment in new infrastructure is needed.”
Asked in a radio interview if Britain’s lights could go out if insufficient investment was forthcoming, he said a lack of new energy generation projects would increase the likelihood of power cuts.
He replied: “Well we hope they won’t. There is an increasing risk now. A lot can be done in terms of demand management, but actually building a new gas power station does take four years.
“So that’s the kind of time pressure we are up against. By adding another two years [for the investigation] that makes it six years.”
Mr Laidlaw could pick up 200 per cent of his salary – or £1.9m – in April 2016 under awards unveiled yesterday by the parent company of British Gas, which trades as Scottish Gas north of the Border.
Ed Davey, the energy secretary, insisted that Mr Laidlaw was “absolutely, utterly wrong”.
However, Labour MP Tim Yeo, chair of the House of Commons energy and climate change committee, echoed Mr Laidlaw’s concerns.
He said: “A prolonged period of uncertainty while the investigation is carried out could delay construction of new gas-fired generation capacity which is essential to avert the coming capacity crunch and keep Britain’s lights on.”
Spiralling energy costs and complicated tariffs have blighted consumers in recent months as an increasing number of people have struggled to pay their energy bills.
Confidence in the industry has plummeted as companies hiked their prices, amid rising profits. The Big Six firms, which include SSE and ScottishPower and which all have power generation arms, account for 95 per cent of the market.
Consumer groups welcomed yesterday’s report, but warned that the two-year timescale means consumers will have to “take their own steps” to make bills more affordable in the short term.
Energy firm chiefs given bonuses topping £2m
Executive pay at British Gas parent Centrica was slashed by two-thirds last year, but bosses were still awarded annual bonuses worth more than £2 million, despite falling profits and a customer exodus.
The group’s annual report showed pay for the top five executives dropped to £6.7m from £18.6m in 2012 as long-term share bonuses awarded three years ago were wiped out due to disappointing results and a plunging share price.
Annual bonuses worth £2.3m were still awarded to the top bosses, including £851,000 for chief executive Sam Laidlaw – although he has already pledged to donate the payout to charity in an effort to calm public anger over rising energy bills.
The cash will go to the Charities Aid Foundation, Centrica confirmed.
Executives were also awarded £5.3m of bonus shares under a long-term incentive scheme that could see Mr Laidlaw pick up a potential 200 per cent of
his salary – or £1.9m – in April 2016 if performance and share price targets are met.
Shares have fallen by 12 per cent over the past six months as the group has been hit hard by the political pressure over rising household energy costs and the uncertainty caused by a full-scale competition inquiry into the sector, which was confirmed yesterday.