Ministers To Fund £300m Energy Bill Rebates

By Mark Kleinman, City Editor

Ministers are to fund a £300m plan for a £12 rebate on every domestic electricity bill in the country as part of a Government effort to combat a round of inflation-busting energy price hikes.

Sky News has learnt that the Government is finalising plans this weekend for a series of measures ahead of next week's autumn statement by the Chancellor, George Osborne.

The debate over energy costs has intensified in recent days as ministers have sought ways to regain the political initiative following the Labour leader Ed Miliband's pledge to impose an energy price freeze for 20 months if Labour wins the next general election.

Five of the 'Big Six' energy companies, including Centrica, the owner of British Gas, and Npower, have announced plans for substantial price increases in the last six weeks. The hikes have sparked a furious row in Westminster and the City about the industry's profitability.

Insiders said on Saturday that the Government package would include an agreement between the Department of Energy and Climate Change (DECC) and a group of companies known as distribution network operators, whose charges account for approximately 20% of consumers' energy bills.

The deal between ministers and these companies, which include National Grid, would involve restructuring their cost-profile over the 15-year period during which they have set out their investment plans.

This measure is expected to lead to an average of £5 off customers' bills, although the precise amount will vary by region, with some parts of the country not seeing any such saving, a source said.

Details of the package of measures could be announced as early as Sunday following intense Whitehall horse-trading over what has become one of the Government's most pressing domestic challenges.

The £300m rebate will be funded by altering the funding of the Warm Home Discount, which funds one-off electricity discounts for thousands of vulnerable customers. This is expected to be transferred to general taxation rather than being funded by the energy companies.

A Whitehall source said the £12-per-account rebate would require licence changes to be overseen by Ofgem, the energy regulator, but that this was unlikely to prove a significant obstacle.

DECC is understood to be keen for the £12 rebate to be clearly marked on consumers' bills and is extracting assurances from the big energy suppliers that they will agree to this.

The largest cut to energy bills is expected to be generated by a roughly £40-per-household saving on a green levy called the Energy Companies Obligation (ECO), which was introduced only this year.

The cost of the ECO, which costs the major suppliers about £1.3bn annually, is to be lowered by lengthening a programme of providing home insulation to 2017.

According to a letter from the Government to energy companies cited in reports this weekend, ministers want to introduce legislation to implement the changes.

"The government intends to make changes to the ECO order with a view to extending the period over which the obligation will run and reducing the expected cost of compliance. The government will consult on detailed proposals shortly and will subsequently look to introduce the necessary legislation as soon as possible," the letter said.

"The changes include extending ECO beyond its current March 2015 deadline. The government's specific proposal in this respect is that a new binding target should be set for March 2017."

David Cameron and Nick Clegg are understood to have been discussing the publication of a joint article in a Sunday newspaper to announce the moves, although it is unclear whether that plan will go ahead.

Ed Davey, the energy and climate change secretary, has informed the energy industry of the full package of proposals in recent days although sources insisted that they were not yet finalised.

The Big Six are expected to announce price cuts or reductions to their planned price increases as soon as the Government's proposals are unveiled.

The overhaul of the ECO will represent something of a u-turn by the Government. The levy places legal obligations on the larger energy suppliers to deliver energy-efficiency measures to domestic energy customers.

It operates alongside the Green Deal and is designed to help people make energy efficiency improvements to buildings by allowing them to pay the costs through their energy bills rather than up-front.

On Friday, Downing Street denied a report that it was pressing the Big Six to agree to freeze prices until after the next election, underlining Mr Cameron's sensitivity about Labour's recent eye-catching policies.

In a statement, Jonathan Reynolds MP, the Shadow Energy and Climate Change Minister, said:

"The Energy Company Obligation is David Cameron's scheme. He only introduced it this year and a few months ago he was even boasting that it was bigger than previous energy efficiency schemes.

"Labour has consistently said that ECO should be reformed to make it better value for money and targeted at those in fuel poverty. But what the public really needs is a Labour government implementing a price freeze until 2017 and resetting the energy market so that it works for the long term."

A Downing Street spokeswoman declined to comment while the Treasury could not be reached on Saturday.

A DECC spokeswoman said: "Government is looking closely at the impact of green levies on consumer bills and how the measures they support are paid for. Details of this review will be announced by the autumn statement."

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