AN INVESTIGATION into soaring gas and electricity bills faced by millions of households and businesses was launched yesterday after British Gas revealed a 500 per cent rise in profits.
Homeowners reacted with fury to the £571 million windfall – up from £95 million last year – weeks after British Gas stung 13 million customers with a 15 per cent increase in prices, leaving them with average dual-fuel bills of more than £1,000 a year
.
Regulator Ofgem said the recent series of inflation-busting price hikes by suppliers had damaged public confidence in Britain’s energy market and that it would investigate whether there was enough competition to ensure consumers were getting a fair deal.
Group-wide earnings for Centrica, which owns British Gas and Scottish Gas, rose to a record £1.95 billion, guaranteeing huge bonuses for bosses. The profits came after a year which saw the wholesale price of gas fall between January and March – but no cut in household bills as a result.
Communities minister Stewart Maxwell spoke out about the profits, saying the big suppliers should take account of the impact on their customers. “While I appreciate that profits are needed to invest in the future of the energy industry, the cost of fuel is the single greatest contributing factor towards fuel poverty.”
Adam Scorer, of consumer lobby group Energywatch, said: “Customers will want to tear their hair out when they hear the scale of these profits and compare them with their rising bills.”
Much of the bumper profit was raked in during early 2007 when low wholesale prices were not matched by lower household bills. Joe Malinowski, who runs website,
www.theenergyshop.com, said: “The first half-year profit was absolutely extraordinary.”
Five of the six big suppliers to British homes and small businesses have announced big increases in their electricity and gas prices so far this year, blaming soaring wholesale energy costs. Only Scottish & Southern Energy has yet to raise prices, saying it would wait until at least the end of March.
“The decision to conduct the probe is in response to public concern about whether the market is working effectively,” the Ofgem chief executive, Alistair Buchanan, said.
“To date we have seen no clear evidence that the market is failing. Nevertheless, recent events in the market have increased public concern and have damaged customers’ confidence that competition is working well and giving them a good deal.”
Graham Kerr, of Energywatch Scotland, said: “We want the quickest possible resolution to the problems that are clearly prohibiting the market from working well for consumers.”
Q & A: HOW THE FIGURES ADD UP
How did British Gas make this much profit?Up to 93 per cent of British Gas’s residential energy supply profits of £571 million were earned in the first half of 2007, when prices paid by households were high but wholesale prices paid by the companies were low.
Was British Gas ripping off its customers?Arguably – but no more than any other supplier. It cut prices during the latter half of last year, sparking a price war that benefited many consumers. Joe Malinowski, founder of price comparison website EnergyShop.com, said: “Operating profit per customer account at British Gas came in at £35.60 for the year – £33.90 in the first half and only £2.40 in the second. British Gas’s decision to lead the price-cutting last year, as well as offering the cheapest tariff for most of 2007, meant their second-half profits were virtually wiped out.”
Will prices get any higher?You bet. More volatility in worldwide supplies of oil and gas means even higher prices are likely for all of us. David Hunter, an energy expert at the analyst McKinnon and Clarke, said: “We would urge users to consider how they purchase their energy, as it is very unlikely that there will be any let-up on soaring energy pricing for the foreseeable future.”
Most suppliers have already implemented double-digit price rises. The last of the big six firms – Scottish and Southern Energy – has only promised to hold its prices until the end of next month.
Are suppliers being fair to consumers?Centrica, British Gas’s parent company, is also a producer of gas – so the bigger company makes money even when wholesale prices are high. Mr Hunter said: “It is like saying Shell petrol stations make low profits because they are buying at high oil prices – but they’re buying the oil from themselves.”
So who is the cheapest?Average figures suggest E.On’s Extra Saver 5 tariff for those paying by monthly direct debit. Try energywatch.org.uk for other deals.
