Electric companies make pounds 12m with your money

THE 12 regional electricity companies stand to gain millions of pounds by withholding cash payments from customers who are entitled to a pounds 1bn windfall from the National Grid flotation.

By discounting future bills, rather than paying out cash, the 12 privatised companies in England and Wales will keep the money in their own accounts and so earn an estimated pounds 12m in extra interest in the next three months.

Last night the discount policy was criticised by both the Consumers Association and Labour, which called for a full inquiry into the methods being used to pass the money on to the 22 million households, entitled to the one-off payment of pounds 54.60 each.

Nigel Griffiths, Labour spokesman for consumer affairs, said: "We are talking about the public's money and the public should be entitled to the interest that money generates. We want an inquiry into the way these rebates are being handled."

He said it was another example of "the consistent overcharging and profiteering that these companies have indulged in since privatisation".

Barbara Harvey, of the Consumers Association, said: "I find it quite extraordinary that the Government should seek to ring-fence the money from the National Grid flotation in this way.

"We feel strongly that consumers should be given as many options as possible, and if their choice is for a cash payment that should be accepted.

"For years these companies have been making very high profits. Now they are saying this method of discounting bills is best; but the truth is, we just don't know. It is very hard for customers to trust companies which are charging them too much in the first place."

The calculation that the electricity companies would gain pounds 12m came from David Walton, an economist with the merchant bankers Goldman Sachs.

"Administratively I've no doubt that it is easier to stick it on the bill but clearly the companies do stand to gain some money by doing this," Mr Walton said. "Consumers will feel the benefit, particularly as the winter bills are heaviest, and we calculate that this rebate represents about 40 per cent of an average family's bill."

The electricty companies argue that discounting future electricity bills is the fairest and most efficient way to benefit their consumers. The payments, some of which have already been credited to customers' accounts, will be completed by the end of March.

The Department of Trade and Industry, which co-ordinated the payout, says that the electricity companies were left to decide the method and mechanism of payment.

However, Yvonne Constance of the chairman's group of the Electricity Consumers' Committees, who helped negotiate the deal, said: "Tim Eggar, the Energy Minister, was keen for the money to be used to reduce energy bills. I don't believe he instructed the companies, but they appear to have taken their lead from him.

"The payment is not as big as we would have liked, but overall we feel that this was a fair rebate or payback on money already spent and invested by consumers. I understand that the method of discounting bills was settled on because it was marginally cheaper to administer."

A spokesman for the Electricity Association, a trade body representing the 12 regional companies, hinted that the choice of discount rather than cash would be beneficial to the companies' tax position. "The money being paid now is a discount in the form of a credit against the future use of electricity and is in no way a rebate of past payment," he said.

"We are paying the discount in this way because we have been advised that to pay cheques to individual customers would attract an additional tax liability for each of the companies. If we did this we would have to deduct the tax from the sum available to pay and the customers would be worse off."

Some customers, such as those in the East Midlands and Norweb regions who use meters to pre-pay their electricity, will be given money rather than discounts. The companies say that the Inland Revenue has allowed an exemption for these customers, and providing they are in credit they will be paid their share by cheque.