UK energy firm stokes growing political row with price hike

Steam rises from the cooling towers at SSE's Fiddlers Ferry electricity power station near Liverpool, northern England, January 28, 2011. REUTERS/Phil Noble

By Paul Sandle and Kate Holton LONDON

(Reuters) - British energy supplier SSE inflamed a growing political row over the rising cost of living on Thursday when it hiked prices by more than three times the rate of inflation.

The leader of the opposition Labour Party put increasing energy bills at the heart of his campaign for the 2015 election last month when he said he would freeze prices for 20 months if his party wins power.

Energy prices have risen 24 percent over the last four years, according to regulator Ofgem, ramping up the pressure on household finances at a time of wage stagnation.

An 8.2 percent price rise on November 15 will add more than 100 pounds to average annual bills for SSE's customers taking both gas and electricity, pushing charges up to 1,380 pounds a year.

"This is a crippling blow for consumers," Ann Robinson at comparison site uSwitch.com said. "Adding a further 111 pounds to an already sky-high energy bill will leave consumers buckling under the pressure."

SSE, the first of the "big six" suppliers to raise prices ahead of the winter, said it needed to counter the increasing cost of buying wholesale energy, paying to deliver it to customers' homes and government-imposed levies.

Labour leader Ed Miliband's pledge to freeze prices before launching a full restructuring of the market helped expand his lead over Prime Minister David Cameron in opinion polls. One put his advantage at 11 points shortly after the announcement.

The government dismissed the idea as a socialist gimmick that would hurt the industry and send out a signal that Britain was anti-business.

The impact on the utility firms of Miliband's promise was dramatic. Shares in the London-listed utilities SSE and Centrica lost a combined 2.7 billion pounds in market value in two days after the announcement.

RISING COSTS

Labour said on Thursday that hard-pressed consumers were paying the price for Cameron's failure to stand up to the energy companies.

"We need an energy market which works for ordinary families and businesses," Miliband said on Twitter, as he pushed his argument that Labour had the policies to rein in the rising cost of living.

Energy minister Michael Fallon told Sky News he was disappointed with SSE's price hike and urged customers to examine whether they could switch to a cheaper tariff.

SSE was also the first to raise prices last year, although it was followed within days by the market-leading gas supplier British Gas, part of Centrica and RWE npower, owned by Germany's RWE AD. Rival Eon said on Thursday it had no current plans to raise its prices.

Iberdrola's Scottish Power and EDF Energy make up the remaining members of the big six firms.

SSE, formerly known as Scottish and Southern Energy, said raising prices for its 2.9 million gas and 4.4 million electricity customers not on fixed tariffs was "the last thing the company wanted to do", and it pledged not to raise prices again before Autumn 2014 at the earliest.

"We're sorry we have to do this," said Will Morris, group managing director retail.

"We've done as much as we could to keep prices down, but the reality is that buying wholesale energy in global markets, delivering it to customers' homes, and government-imposed levies collected through bills - endorsed by all the major parties - all cost more than they did last year."

The company, which said it had a profit margin of 4.2 percent in its energy supply business in 2012/13, shifted the blame for the price rises onto the costs of environmental and social policies pursued by both the Conservatives and their Liberal Democrat coalition partners.

It said politicians could help consumers by transferring the costs from the energy bill payer to the taxpayer, which would immediately take 4 billion pounds off UK energy bills.

"We know we will come in for a great deal of criticism for this decision and politicians will no doubt be lining up to condemn us," Morris said.

"But over many years policymakers themselves have failed to highlight adequately the cost to consumers of the policies they have pursued in government," he said, in reference to upgraded networks and power stations.

The move by SSE lifted sentiment around the whole sector, with shares in Centrica up 1.4 percent and shares in SSE up 1.3 percent.

(Additional reporting by Nina Chestney; Editing by Toby Chopra)

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