Big Six energy giants feel the heat over 700% rise in profit

Energy secretary Chris Huhne has welcomed the review planned by Ofgen. Photo: PA
Energy secretary Chris Huhne has welcomed the review planned by Ofgen. Photo: PA
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FURY has erupted over rising energy prices after a report by the industry regulator said the average annual profit made by the Big Six companies has jumped to £125 per customer – a rise of 700 per cent.

According to the Ofgem report yesterday, profits on standard dual-fuel deals, where customers receive gas and electricity from the same supplier, had rocketed from the £15 per customer recorded in June.

The dramatic rise follows a spate of price hikes announced in recent weeks by the Big Six energy companies.

The average annual dual fuel bill is now £1,345 compared with £1,105 this time last year.

Although Ofgem said it expected profit margins to drop next year, the regulator’s chief executive Alistair Buchanan said it was “not the case” that customers could be confident that prices are “being set by companies competing in a fully competitive market”.

Rising wholesale prices have been cited by suppliers for the recent spate of tariff hikes, which have angered consumer groups and customers.

But the behaviour of the energy companies was criticised by Ofgem, which said there was a combination of confusing tariffs and lack of transparency meant that “radical change” was still needed in the sector.

The Big Six of British Gas, which trades as Scottish Gas north of the Border, E.ON Energy, EDF Energy, Npower, Scottish & Southern Energy and ScottishPower attempted to defend themselves against a welter of criticism.

But Susan McPhee, head of policy for Citizens Advice Scotland, said: “At a time when Scottish families are struggling to pay their fuel bills, power companies should be doing everything they possibly can to keep prices down.

“With profits like these, it’s difficult to see how they can argue that they are unable to do so. These profits have to be seen in the context of how high fuel bills are and how this is affecting people. CAB advisers see this every day.

Ms McPhee added: “As we head into another Scottish winter, one third of Scots, including pensioners, sick and disabled people and families with young children, will be shivering in their homes because they can’t afford to switch the heating on. This is the reality.”

Ofgem’s prediction was that energy firms’ profit margins will fall to about £90 per customer next year as wholesale prices continue to rise.

But Tim Yeo, the chairman of the House of Commons’ Energy and Climate Change Committee, criticised the rise in profits.

The Conservative MP said it was “evidence of absolutely crass behaviour by the energy companies, with a jump in prices announced in the last few months ahead of what will be a winter in which most families face their highest ever electricity and gas bills.

He added: “The process of trying to switch from one supplier to another is hideously complicated – very off-putting even for quite intelligent people.”

Tom Greatrex MP, Labour’s shadow energy minister, said Scottish customers would be “shocked” but not surprised by the rise in profits.

“With forecasts of a bitter winter looming, it’s more important than ever that families in Scotland are not being ripped off, Mr Greatrex said. “The government has to get a grip on energy bills.

“We need fundamental reform of the energy market, to break the stranglehold of the Big Six, allowing new entrants, increasing competition and driving down energy bills for families and businesses in Scotland.”

Ofgem is overseeing reform of the energy market. As a first move, a new simplified standard tariff will be introduced.

There are more than 400 different tariffs available at present but in future firms will have to offer a no-frills version featuring just the unit price for energy used and the standing charge.

In addition to trying to boost competition by simplifying tariffs, Ofgem is looking at how to reform the wholesale energy markets, which are the places suppliers go to buy their energy.

Ofgem wants to reform those markets to allow greater competition with the big suppliers and will publish proposals in December. The bigger suppliers have an advantage because they generate their own electricity, selling most of it to consumers, with little of it going to wholesale markets.

But earlier in the week. one of the big providers, SSE, announced plans to auction all of its power on the open market. Ofgem has proposed that utilities must auction 20 per cent of their electricity by 2013.

Energy Secretary Chris Huhne, who is due to meet energy companies, consumer groups and the regulator on Monday to ensure that households are given help in saving money on their bills this winter, welcomed Ofgem’s review proposals.

He said: “Both the government and Ofgem are working to boost transparency in billing and increase competition in the energy market to help keep prices down.”

The energy companiesdisputed Ofgem’s analysis. Perth-based SSE said it “did not recognise in any way” Ofgem’s calculation of profits. British Gas also said Ofgem was wrong and its methodology flawed. “Our own audited accounts show that, for the first six months of this year, our margins per dual fuel household were £24 after tax. In 2011, profits will be lower than 2010,” the firm said.

Industry lobby group Energy UK also criticised the Ofgem calculations. Director Christine McGourty said: “A snapshot of profits every few months does not provide a realistic picture of the average profits over a year.”