10th Feb 2014 11:53
LONDON (Alliance News) - UK Energy Secretary Ed Davey has written a letter to energy regulators claiming that the profit margins made by the big six energy firms in the UK when supplying gas are much higher than previously thought, according to the BBC.
In the letter, Davey criticised profit margins mainly at British Gas Ltd, a subsidiary of Centrica PLC, stating that its profit margin is one of the industry's highest and, with 41% of the market, it has the largest share.
As a result, Davey has now asked the UK competition authorities, which are currently reviewing the cost of energy and transparency at the big six energy companies, to also investigate the profit margins at these companies.
The BBC said that Davey has written to energy regulator Ofgem and other authorities asking them to consider all possible options including "a break-up of any companies found to have monopoly power to the detriment of the consumer."
British Gas responded in a statement by saying that, "there is an ongoing independent market assessment being conducted by the OFT, Ofgem and the Competition & Markets Authority. We welcome this and have complied with all the requests for data which we have received."
"Further discussions have been arranged over the coming weeks in which we will fully participate. The data referred to in the Secretary of State's letter has already been fully disclosed and in the public domain for a number of months," the company added.
Energy prices are turning into a political football ahead of the next election. Dwindling household budgets are set to become one of the main features of party campaigns as wage growth remains low while things like energy prices increase at rates well above inflation.
The increases have prompted a storm of protest from consumer groups, and politicians of all parties. The protests were stoked when Ofgem said that wholesale prices have risen by less than the rate of inflation and that its data suggests that wholesale electricity and gas together have risen by just 1.7% over the last year.
UK Prime Minister David Cameron recently announced a review of energy pricing and competition in the commons, while the Conservative leader has also pledged to cut green taxes next year.
Opposition leader Ed Miliband has said Labour will freeze energy prices for two years if it is elected to power in 2015, prompting energy companies to warn that they may not be able to fund investments and warnings from critics who say companies may raise prices even more ahead of any freeze.
Most of the debate has centred around the electricity market, but Davey said that gas accounts for two thirds of an energy bill for most households and the average profit margin for gas is roughly three times that of electricity.
The big six energy company's in the UK are British Gas, E.ON SE, EDF Energy PLC, RWE Npower PLC, ScottishPower Ltd and SSE PLC.
Davey added that if margins in gas were similar to electricity, the average saving per household could be up to GBP40 per year.
His letter shows that Centrica saw profit margins of 11.2% for its gas business in 2012 and a 41% share of the gas market, while SSE also has a high profit margin of 11.4% but a much smaller market share and EDF made a 4.1% loss on gas in 2012.
The analysis compares the gas margins with the profit margins of supermarkets which typically range from 3.5% to 5%.
"SSE expects that it should make an average profit margin in Energy Supply of 5% over the medium term. In recent years our accounts show that we have made less than that. Profit margins from supplying gas, in particular, can be heavily influenced by the weather in any given year, as abnormally cold temperatures can increase the amount customers use," SSE said in a statement.
Centrica shares were down 3.2% to 304.49 pence Monday, making it the top FTSE100 loser, while SSE shares were down 1.4% to 1,343.85 pence putting it in the top five FTSE100 losers.
http://www.bbc.co.uk/news/business-26112330
By Tom McIvor; [email protected]; @TomMcIvor1
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