Gas profit margins questioned by energy secretary – Updated

Ed Davey says British Gas could be broken up in a bid to reduce the energy supplier’s dominant position on the market and reduce gas prices

Are British households paying £40 too much for gas?

Are British households paying £40 too much for gas?

Update – British Gas hits back

Chris Weston, managing director of British Gas, responded to Davey’s allegations saying: “In the last six years we have invested £13.7bn , which is equivalent to £1.85 for every £1 earned.

“We also support jobs and growth in Britain, directly employing more than 30,000 people.”

He added that the company was one of the largest corporate tax payers in the UK.

British Gas saw its shares fall 3.7% following Davey’s statements.

Original story

Energy Secretary Ed Davey sent a letter to energy regulator Ofgem in which he underlined that energy firms are making up to five times more profit on gas than on electricity.

In the same letter, he suggested there was evidence that British Gas, which accounts for 41% of the UK energy market, was taking advantage of its dominant position to charge customers more and boost parent company Centrica’s profits.

Davey claims that if the profit margin on gas was similar to that on electricity, households would be paying £40 less every year on average.

Energy market audit expected in March

At present a review is being carried out into the business models employed by UK based energy companies, however, Davey is concerned that not enough focus is being given to gas prices. The latter typically make up the largest percentage of household energy bills.

In his letter addressed to Ofgem, Davey said: “Most commentary has looked at alleged problems in the electricity market, however, for the 85% of households who are connected to the gas grid, two thirds of their energy bill is accounted for by gas rather than electricity.

“Analysis of the profit margins of the energy companies shows that the average profit margin for gas is around three times that of electricity. For some companies the profit margin is actually more than five times the average profit being made on supplying household electricity.”

British Gas could be broken up

Davey added that should British Gas be found to be responsible for high gas prices a “whole gamut of potential remedies could follow”. One of these he pointed out, could be the forced break up of the company.

A spokesman for British Gas said: “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.”

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