Brussels warns of clampdown on European energy giants

Brussels threatened legal action yesterday against European energy companies accused of adding as much as £10bn to UK gas bills by rigging the market and abusing their dominant position.

The move, by Europe'scompetition commissioner Neelie Kroes, was welcomed by British politicians, consumer groups and energy regulators who have been pressing the EU to crack down on the monopoly operators of gas pipeline networks on the Continent.

After a nine-month investigation, Ms Kroes promised a "period of more intensive anti-trust enforcement" to protect consumers and ensure the EU's energy markets were operating in a fair and transparent way.

The EU's hard-hitting stance opens up the possibility that big, vertically integrated energy companies on the Continent, such as Germany's E.ON, Gaz de France and Distrigas of Belgium, which transport and supply gas, may be forced to break themselves up. This could make it easier for companies to import gas into the UK and ease the pressure on UK prices, which have shot up in the winter months to levels far above those seen on the Continent.

UK wholesale gas prices surged 40 per cent yesterday to 70p a therm, although this was blamed on a fire on the Bravo platform in the North Sea which forced Centrica to close down its Rough gas storage facility, which can supply about 10 per cent of the UK's peak demand.

Publishing her interim report, Ms Kroes did not name individual companies but said the commission would soon launch anti-trust investigations. "We have seen dramatic price rises over recent months for gas and electricity. There are, no doubt, several causes of this. But one may be anti-competitive practice."

Her report highlighted several reasons for the "worrying distortions of competition in EU energy markets". These included the lack of competition in energy markets on the Continent, the high degree of vertical integration, the dominant position of former state-owned monopolies and the way in which gas prices were linked to the price of oil.

It says there is no significant cross-border competition, with new firms unable to get transit capacity on key routes in the gas market, and international competition in electricity hampered by lack of inter-connector capacity. New energy suppliers are unable to get the information they need to compete .

The report was welcomed by Sir John Mogg, the chairman of the UK energy regulator Ofgem, who said it proved that "urgent action" was needed to deliver a competitive European energy market and called on the Commission to show the necessary political will to follow through. "This task will not be easy as it is likely to face stiff resistance from major European energy companies," he said.

The UK's Energy minister, Malcolm Wicks, also welcomed the "hard-hitting" report, saying: "Strong words now need to be backed by strong action. I therefore support the Commission's commitment to using the legal powers available to bring those energy companies engaging in anti-competitive practices into line with European policy."

Ofgem calculates that British consumers paid £1bn more than they needed to this winter because of the failure of the inter-connector between Belgium and the UK to operate properly and said the cost next winter could be £3bn.

But Centrica warned the additional cost for UK gas users this year could be £10bn. Sir Roy Gardner, its chief executive , said: "UK consumers are paying a very high price for the failure of member state governments to end the closed shop Europe's energy markets."