Big six energy firms accused of 'cold-blooded profiteering'

The big six energy suppliers have been accused of "cold-blooded profiteering" after official figures showed they had more than doubled their retail profit margins over the last 18 months and were now earning an average of £95 profit per household on dual-fuel bills.

The industry regulator Ofgem, which produced the estimates, said profits per household would reach £100 over the next 12 months.

Other new figures obtained from British Gas, EDF and the four other suppliers showed their profit margin from power generation – a separate part of the business – averaged more than 24% in 2011. They are believed to have risen since.

The escalating earnings were condemned by fuel poverty campaigners, rival energy companies and the shadow energy secretary, Caroline Flint.

They have led to further calls for the gas and electricity market to be reformed to break the stranglehold the big six have on supply, and will increase pressure on energy executives who are due to appear before parliament's energy and climate change committee on Tuesday as part of an inquiry under the title "energy prices, profits and poverty".

Sam Robertson, a campaigner with Fuel Poverty Action, said millions of UK households facing a choice of whether to heat or eat would be left wondering what difference an extra £95 could have made.

"This cold-blooded profiteering has to stop, but piecemeal market reforms will not go far enough, especially given the threat of a dash for gas that will send bills through the roof," Robertson said.

The big six, which include SSE and RWE, already under fire for increasing domestic bills during an economic downturn, but the latest weekly Ofgem projections show dual-fuel retail bills are now up to an average of £1,420 a year, delivering £95 in profit per customer – a profit margin for the firms of 7%.

That is up from an average bill in 2011 of £1,030 and a profit margin of 3.2%, according to figures provided earlier by the companies but only now published by Ofgem.

The 2011 figures – the first the companies provided under the regulator's drive to bring more transparency to the market – also revealed the profit margins of the big six on their power generation divisions. EDF, the French-owned business that is demanding huge subsidies from the UK government to build nuclear plants, had a profit margin of more than 30% in 2011 while Centrica's was 17%.

Ofgem said average margins in generation across the big six increased from 18.4% in 2010 to 24.4% in 2011.

Caroline Flint, the shadow energy and climate change secretary, said the Ofgem numbers revealed the true scale of the problems in the power market.

"Energy companies always claim that when they put up people's bills they're only passing on increased costs. What these figures show once and for all is that energy companies have increased their profits on the back of spiralling bills for hard-pressed consumers," she said.

"These companies like to pretend they are the victims of wholesale prices, but they have been allowed to arrange their businesses in a way that enables them to make huge profits whatever the cost of wholesale energy."

Ed Kamm, chief marketing officer at Warwick-based First Utility, a small energy provider, said the figures underlined the dangers of huge companies dominating the wholesale and retail markets.

"The control the big six have over the wholesale market makes it difficult for independent suppliers to compete on price, which ultimately harms consumers. The big six firms' generation margins are nearly 25% and increasing because they are not exposed to the market pressures which drive efficiency unlike other truly competitive industries. This is bad for competition and, ultimately, bad for consumers."

A spokesman for Centrica said the company's post-tax profit margins on the retail market had averaged 5% for the last five years and was currently the equivalent of £50 per customer.

He said the wholesale margin needed to be higher given that it funded power stations and forward contracts for up to £50bn of new gas supplies. "We believe it is a fair margin."

EDF was unavailable for comment.

SSE said retail operated as a standalone business as it did for all other energy companies. "Cross-subsidising energy supply with profits from the wholesale business would create a barrier to entry into the market, to the detriment of healthy competition. We expect to make a profit margin of around 5% in energy supply over the medium term, which we believe to be fair and sustainable."

An Ofgem spokesman said it was up to individual companies to justify their profits and prices to their customers, but the regulator was playing its part by forcing companies to release their internal figures while shaking up the market.

"We are planning the most radical changes to the market since competition began, to make it simpler, clearer and fairer," he said. "To achieve this we propose to cut down the number of complex tariffs and simplify their structure. This will make it easier for consumers to find a cheaper deal. We also want to introduce other major changes to increase competitive pressure on suppliers. Our reforms are due to take effect from this summer."

All of the big six energy companies increased their prices between October 2012 and January 2013. The firms blamed rising wholesale power and other costs.

Ian Marchant, the chief executive of SSE, which raised its gas and electricity prices by 9% from mid-October, said at the time: "The increases in costs that we have seen … can no longer be absorbed and mean that we are unable to keep prices at their current levels beyond this autumn. An increase in our prices has therefore, regrettably, become unavoidable."

The SSE boss warned last month that "there is a very real risk of the lights going out" in Britain.

Original Article
Source: guardian.co.uk
Author: Terry Macalister