British Gas faces backlash

The UK energy consultancy McKinnon & Clarke has criticised British Gas along with its profitable competitors such as Scottish Power for not reducing consumers’ energy bills following the slump in wholesale gas and power prices during the recession.

British Gas, the residential arm of UK utility Centrica, announced today that profits soared 58 per cent last year. Meanwhile Scottish Power revealed yesterday a modest 7.9 per cent growth in profits. 

McKinnon & Clarke has described the dramatically rising profits as ‘indefensible’ as people struggle to heat their homes. 

The consultancy’s energy analyst, David Hunter said: ‘Failure of the “Big 6” suppliers to pass on to customers the massive reductions in wholesale energy prices, which they have been enjoying since 2008, is scandalous.’

Since summer 2008, the consultancy pointed out that wholesale gas prices have dropped from a peak of more than £1 per therm to around 38p - electricity from £90 per MWh to around £37 - falls in the region of 60 per cent. Yet, costs to homes are as much as 35 to 40 per cent higher for gas and 10 to 15 per cent more for electricity than before the huge price rises of 2008. 

The rising prices are not just affecting homeowners. The Forum of Private Business (FPB) revealed today that rising energy prices are unfairly imploding the budgets of small firms. The FPB unveiled new government industry data showing that average electricity prices for small and medium-sized firms increased by 15 to 17 per cent between the third quarter of 2008 and the same period of 2009. However, prices increased by nine to 11 per cent for large businesses and by just five per cent for the UK’s biggest companies.

Hunter said the real cause of these rising energy prices is the lack of competition. He pointed his finger at energy regulator Ofgem for not taking control of the situation.

‘For years, Ofgem has claimed the market is working when it is glaringly obvious that people are simply paying too much to light and heat their homes,’ he said. ‘The regulator created the market and has defended it for too long.’

The FPB was less critical of Ofgem and commended the energy regulator for recent attempts to boost competition by creating transparency in energy cost forecasts. This, the FPB argues, will allow smaller providers to buy in advance and increase liquidity in wholesale markets.

Hunter welcomed plans for increased liquidity in the wholesale markets, saying this will finally give independent suppliers a fighting chance of competing with the dominating utilities, whether through new routes to market, forced energy auctions or restrictions on self-supply.

‘What we need is competition and transparency, not smoke and mirrors,’ he said.

With the recent price revelations, the FPB said the consumer’s best defence in this market is to try and make savings by switching energy suppliers.