ALISTAIR Phillips-Davies, the new chief executive of Scottish Hydro owner SSE, has hit out against Labour’s claims that energy companies have landed customers with “rip-off” energy bills.
Phillips-Davies insisted that the utility firm’s margins are lower than many food retailers, and called on the industry to have an “objective” debate with government and opposition on protecting customers from rising costs.
SSE’s latest set of annual results, published in May, showed that operating profits from its energy supply division, which has almost 9.5 million domestic customers in Britain and Ireland, surged 34 per cent to £410.1 million in the 12 months to March.
Earnings were boosted by the colder-than-normal weather, and the Perth-based group – which raised its tariffs by 9 per cent in October – warned bills could rise even higher “unless there is a sustained reduction in prices in wholesale gas and electricity markets”.
The haul prompted criticism from shadow energy secretary Caroline Flint, who last week said the Prime Minister had failed to reform the “broken” energy market and allowed the UK’s big six energy companies to rake in bumper profits over the past three years.
Flint said: “The public have been left with a £3.3 billion price tag for David Cameron’s failure to act on rip-off energy bills.”
However, Phillips-Davies, who last month succeeded Ian Marchant as SSE’s boss, jumped to the defence of the industry, insisting that private companies have to pay shareholders a return on their investment and higher profits are needed to fund “complex investments” such as power stations.
In an article published in the New Statesman, he said: “I understand that some people, many of whom may be Labour party members, believe that utilities – like the company I lead – should never have been privatised and so any level of profit is unacceptable.
“That’s a perfectly legitimate view to hold, but it is not the policy of any leading political party.”
Angela Knight, chief executive of trade body Energy UK, described Flint’s intervention as a “disappointing and inaccurate bashing”.
She said: “If a company is to stay in business it has to make a profit. And the more a company has to invest then it has to make more profit to do so.”
In his article – which appeared under the headline “Yes, my energy company makes a profit. So what?” – Phillips-Davies said politicians and the public must accept that policies aimed at slashing carbon emissions “come with a price tag” and energy firms’ profits will have to increase to meet the estimated £110bn that the industry needs to invest in infrastructure by 2020. SSE was fined £10.5m by industry regulator Ofgem in April after an investigation found the company was guilty of “prolonged and extensive” mis-selling of customer contracts.
Phillips-Davies said: “I am not pretending SSE or other companies are perfect, but that must not stop us from having a genuine debate around the future of energy in the UK and how we are going to pay for it through proper economic investment.”
Scottish Gas parent company Centrica recently reported a 3.2 per cent increase in profits at its residential arm, but profits from ScottishPower’s generation and supply business fell 17.7 per cent because of higher energy-efficiency levies imposed by Ofgem.