The
power players and their prices
Ofgem, the energy regulator, is launching an investigation into the
electricity and gas market as the row over the record profits announced
today by British Gas-owner Centrica reached fever pitch.
The watchdog will examine energy suppliers to households and small businesses,
and said: “The decision to conduct the probe is in response to public
concern about whether the market is working effectively.”
Centrica was under renewed attack today after it reported pre-tax profits up
50 per cent to £1.8 billion, just weeks after raising gas and electricity
prices for 16 million British Gas customers by 15 per cent.
Richard Lambert, CBI director-general, today took the unprecedented step of
wading into the fight on behalf of Centrica, defending its right to make
profit for reinvestment.
Previously, the CBI has only fought on behalf of profits made by banks and oil
companies on a sector-wide basis.
A spokesman for Ofgem insisted that the launch of the investigation had not
been prompted by Centrica’s results, and the regulator’s board already been
considering whether to start a probe into energy suppliers.
He said: “The final decision had to be made by the board which has a regular
monthly meeting. It just so happens that the meeting coincided with
Centrica’s results.”
More than half of Centrica’s profits came from its British Gas residential
business, where operating profits leapt more than six fold, from £95m to
£571 million.
Last month, Centrica was one of a number of businesses to hike household
prices on gas and electricity, blaming the increases on the rising cost of
energy in the wholesale market.
In January, Ofgem said that it did not believe there was any collusion between
energy suppliers on the new prices.
The regulator said today that it would use its powers under the Enterprise Act
to seek information from companies as part of the investigation. Depending
on Ofgem’s findings, companies could be referred to the Competition
Commission.
Sam Laidlaw, chief executive of Centrica, defended the price increases saying
that they were necessary if the company was to sustain investment in wind
farms and upstream gas assets, so that it was less exposed to the volatility
of wholesale gas markets.
He said: “We understand that these prices rises have been difficult for many
customers but our prices are very competitive and still lower than they were
a year ago.”
However, Mr Laidlaw insisted that the UK market was not rigged or ripping off
customers. “This is a market that has some of the cheapest energy prices in
Europe. Five million people switch supplier every year, which is the highest
level of switching in the world – clearly it is a very competitive market,”
he said.
Just prior to the emergence of the Ofgem probe, the CBI’s Mr Lambert said: "It
is not the job of the CBI to comment on individual companies' profits but
given the reaction by some NGOs [non-government organisations] to Centrica's
profits, there are three points worth making.
"One, volatile gas prices led to a big swing in reported profits. The
first half of 2007 show a £676 million shift from loss to profit in British
Gas Residential's operating results. In the second half of the year, as gas
prices rose, profits fell to just £38 million.
"Two, operating profits at British Gas of £571m for the year need to be
put in context of sales of £6.45 billion. This is a very big company.
"Three, massive investment in power will be necessary over the next 25
years if the UK is to shift to a low carbon economy and achieve its goals of
energy security.
"Companies need to make profits in order to invest."
In contrast, Energywatch, the consumer body, criticised Centrica for rewarding
shareholders and penalising consumers. Centrica is increasing its full-year
dividend to shareholders by 17 per cent to 13 pence per share.
Adam Scorer, Energywatch director of campaigns said: "It is perfectly
true that there is volatility in wholesale energy markets. But it seems
equally true that such volatility hits consumers not shareholders."
"Consumers will feel justified in claiming that they are being taken for
a very rough ride by energy companies," he added.
Energywatch has already called for a Competition Commission investigation into
energy supply, claiming that energy companies did not pass on the full decline in wholesale prices to customers.
The Business, Enterprise and Regulatory Reform select committee of MPs is
currently looking at the competitiveness of UK’s energy markets and has
quizzed energy companies about their steep price increases
Centrica said that most of its profits were made in the first half of 2007,
when wholesale energy prices dropped sharply, allowing the company to make
significant margins and temporarily lower prices for its customers.
Since last summer, however, wholesale prices have climbed sharply, tracking
the oil price, prompting the company to impose double-digit price increases
last month.
British Gas’s price cuts last spring attracted 200,000 customers back to the
company, taking its total number of customer accounts back to 16 million,
from an all-time low of 15.8 million.
Mr Laidlaw said it was too soon to see whether the recent price increases
would drive customers away again. It is thought that many customers are
waiting to see if there are any further increases from other companies
before switching.
Overall, the number of gas customers fell in 2007 by 2.4 per cent to just over
10 million, while the number of electricity customers rose by 4.5 per cent
to just over six million.
Mr Laidlaw said that British Gas residential margins fell to just 1 per cent
in the second half of 2007, compared with an average of 8.3 per cent for the
full year. By the end of the year the residential business was loss making
after a 50 per cent rise in forward wholesale prices for 2008, he said.
He also gave warning that the dramatic improvement in profits achieved in 2007
would not continue into 2008 if wholesale energy prices remain high.
“The favorable commodity picture we experienced in the first half of the year,
which drove higher profits in the residential supply business and which was
behind the stronger 2007 earnings, is unlikely to be repeated in 2008. While
the current forward market gas price provides a more positive outlook for
our gas production business it would make the legacy industrial and
commercial contracts loss making.”
Operating profit at Centrica climbed 40 per cent in the year to 31 December to
£1.9 billion, on the back of flat revenues of £16.3 billion.
God what a set of moaners you all are, has not everything gone up under rip off labour? But the voters will still go out and vote for them again. If you all ran your own companys would you not try to achive maximum proffit ? Centrica are not the only company not to pass on reductions at least they are British owned not like most of the other energy companies(german and french) at least they invest there proffit back into this country. So get real people and just live with the fact everybody is in it for themselves just look at your local MP's.
PS Yes I am a shareholder in BG
Kevin Seaward, scarborough, england
I would like to know NOW what this Administration are going to do re this Corporate swindle - prices hiked by 15% with the lamest excuse and we now see that they are announcing record profits.
Prices do NOT go down when the spot prices fall and they are hedging their bets 'just in case' the market prices go up later in the year!
What is the energy minister going to do about this?
PT, Rickmansworth, Hertfordshire
This level of profit is clearly unjustifiable. Fuel as food and water is a basic human need and right. It is totally immoral to make a profit out of such things. This is simple an example of lack of Government regulation allowing the poorest in our society to be victims. Excessive greed or profit is like any other crime, it is never victimless.
Tony Woods, London, UK
It has been a burning issue for a long time that British Gas's pricing policy is highly unfair. All the British Gas talk about looking after it's customers is simply a lot of hot air. The huge profit recently announced makes our blood boil. I am sure the directors are still cooking up some more new ideas to rip off their customers. Their promise to keep the price of fuels competitive is nothing but a half-baked idea. The government and the media must keep the heat on British Gas to come up with a more reasonable pricing scheme or structure. Personally I think the entire board of directors should be fired and replaced with people with better business ethics. The campaign for cheaper fuel bills for all households in the UK must not be allowed to run out of steam!
Wing, Poole, UK
At least Centrica's dividends help to repair some of the damage to people's pension funds caused by the theft out of them by this Labour government.
SRB, Abergele, UK
Good old BG, raise prices because operating profits are too low, turn in your biggest ever profit margin AND increase dividends to your shareholders and then moan when everybody cries foul. BG was privatised by Maggie, not to provide more choice and competition, but to take power from the unions who had been holding the country to ransom. It was a knee jerk reaction! State control the storage and delivery network, allow companies to buy thier supplies from where they like, subject to quality controls, and charge all companies the same rate per cubic whatever for delivery of the gas. That would prvide true competition and a level playing field. I'm seriously considering alternative sources of renewable energy for my home, but I expect they'll be taxed anyway. Heads you lose, tails they win!
Ron, Milon Keynes, Bucks
Water Company profits - up. Above inflation bill rises.
Energy Company Profits - up. Above inflation bill rises.
Oil Company profits - up. Record breaking profits. Cost at pump through the roof.
Rail Services profits - up. Above inflation rises.
Council Tax - up. Above inflation rises.
House prices - beyond reach of average first time buyer.
Good to see we're living the capatilist dream but how we doing on a happy, healthy and egalitarian society? I'm just glad to see those at the top benefit as "i'm sure" trickle down occurs. cough cough.
Keven,
We're British and we're Great, don't you know, nothing is too much to bare when it comes the greed of the rich, as long as they're alright i'm REALLY happy.
Mark , Bton, England
i used to actually do the financial modelling for pricing within British Gas Business and i can assure you the prices were set to reflect the cost of purchasing the raw commodity. get real people, if you dont want to pay, dont use the resource, or better still, save up, buy some Centrica shares and then you have a natural hedge :)
ExBG, Londonshire, Angleterre
Comments about nationalisation are idiotic.
The real solution is to introduce more competition so BG cannot raise prices for fear of losing customers. It seems that current competition is either not working or too weak.
John, San Jose, USA/UK, CA
Thatcher a good PM, what planet are you from/? Her mania for denationalisation/ privatisation wrecked the lives of thousands.
not to mention the destruction of the mining industry and the unemployment of thousands of middleaged men who had no chance of ever getting a decent wage again.
The public are reaping the crop she sowed in chaotic railway services, overcrowded roads and extortion from the providers of power and water.
Now the shareholders laugh all the way to the bank while low income and pensioners starve with cold or hunger.
And don't forget the Faulklands adventure
Thatcher is today living in great comfort and basking in the adulation of even Labour politicians who should be ashamed of themselves. Even her own party got rid of her!
plato, ely, uk
This is the problem with privatising essential services. Corporations are interested only in making as much money as possible.
If Energywatch does find that British Gas has been profiteering at the expense of the general public, it should be forced to refund the difference between what customers should have paid and what they did pay - plus substantial interest.
Since profits are the only thing that matters to them, hitting them where it hurts is the only thing that will make them change their behaviour.
Alli, Stockton-on-Tees, England
Ah, so it was a sixfold increase and not just the eighty odd percent as reported earlier. If the government were that sloppy you'd give them hell and rightly so.
Neil McF, Southampton, England
I had thought Maggie was a good PM, but taking the service providers from national control was a huge mistake. Now we see that just a fortunate few profit whilst the majority suffer. They should all be brought back into state control.
Alan, Midlands,
Have a rant but it doesn't obscure the truth which is that oil and gas prices have risen sharply. Consumption is up and OPEC has seized its chance.
Philip, Lichfield, Staffs
You can be sure that BG's accountants have stuffed every corner of their balance sheet with provisions to try to reduce the size of this year's profits. The 'real' number is likely to be higher still.
Colin , Shrewsbury,
Time for a windfall tax. See petitions section on 10 Downing St website
Richard, Eastbourne, UK
Obscene,unjust,unacceptable face of capitalism.
Come back militant union leaders,all is forgiven.
Competetion commission is an impotent face-saver for the industry and commerce.
I thought the Prime Minister's yesterday's reply in the commons to a question on these vulgar rises betrayed his weakness and this Govrnment's incompetence.
I hope the Centrica share holders many of who will,I suspect. be customers of the British Gas are ashamed and write to the cpmpany to condemn such exhorbitant and unjustifiable rise in prices.
Dr.Abdul Jaleel, Darlington, UK
My Economy 7 is supplied by BG and the night charge has increased overnight from 2.463p per kWh to 4.95p. This is an impressive 100% inflation of my heating bill when overall inflation is allegedly 2.1% and British Gas profits have soared by 83%. Funnily enough all suppliers are now charging a similar amount, so much for switching and freedom of choice. Energywatch (the regulator) is presumably happy about all this (not to mention the appalling customer service we receive from British Gas).
Anna, Totnes, UK
While there is no doubt that Centrica is having a lot of fun at our expense, there is one positive side. High energy prices place more emphasis on insulation etc, an area that the UK is abyssmally bad at. Anything that can bring our construction standards up to somewhere close to other northern countries around the world is to be welcomed, energy sharks notwithstanding. Our government could give a lead on this but as ever the Treasury is looking at next month, not next year.
Colin , Shrewsbury,
Is it now not time for the energy regulator to intervene on behalf of the consumer? The public are being legally "mugged" by Government and business without a murmur from those in a position to protect us! I know of a British Gas employee who cannot wait for his bonus! Enjoy it I say, safe in the knowledge it has been legally robbed from the consumers. Enough is enough, and no more of it! Regulator protect the public as is your remit! The Government should also be investigating the profits of the utilities. Oh I forgot, they have just mugged us with their nationalisation of Northern Rock!
R.B., Leicester,
Such fundamental services should never be privatised - all this talk of improved quality of service is nonsense. With so many particularly the elderly who can barely afford to stay warm its utterly disgusting to see shareholders profit from others misfortunes.
Farrukh, Woking, UK
Yes... We should have followed the lead of the Norwegians and maintained a state owned oil/gas company.
DickW, Aberdeenshire, Scotland
Nationlise the company and don,t pay off the fat cats, take away thier pensions, its just another case of pigs around the trough
Julian Hale, Stockton on Tees, England
I Should hope that the "dramatic increase in profits is not sustainable", the customers cannot afford it! Strange that Shell has also poster record profits. Sounds like they've been selling us a story that's not true.
CA, Manchester, UK
Scandalous! yet another example of rip-off Britain. I have spent money that, as a pensioner I can ill-afford, on a new boiler, and yet my energy bills just keep rising. I have to do without other things to contribute towards some people's six figure salaries!
David Smith, Carlisle,
GREED, GREED, GREED - and our society is doing absolutely nothing to put a stop to it.... remember what happened to the ultra greedy in France in 1789 and Russia in 1917... ? But then we English don't like to make a fuss do we? We'd rather simply pay through the nose for everything. I just hope that one day the final straw will eventually break the camels back...!!! How entertaining it might prove to see the FAT CATS meeting an apointment with Madame Guillotine in Trafalgar Square......
kevan, Nottingham, England
Pssst, if you see Sid don't forget to tell him.
Dave, Lancashire, UK
Sick! Bring back nationalisation, I say! Who thought privatisation would save the day? They only want to line their pockets. When will the government regulatory system step in? Or will heating end up the way of the railways, only for the rich?
Rose, London,
Britain has a major problem with old people dying during the cold winters. The old often have an inability to pay to adequately heat their homes and suffer from fuel poverty. Unfortunately those who prosper in the utility sector could potentially be seen as contributing to that suffering. The utilities gas, water and electricity should not be making huge profits as they are safe non risk businesses. Something is fundamentally wrong with the market and true competition non existent.
John, manchester,