Centrica rise fuels price row
● Peers say electricity customers get bad deal with prices up by 58% since 2003
Scottish Gas-owner Centrica has fuelled further controversy over energy prices after reporting another rise in profits.
Annual group operating profits at Centrica jumped 4 per cent to £1.5 billion, helped in part by a 2 per cent rise in operating profits to £906 million.
Electricity prices have soared because of constant meddling in the energy sector by successive governments, a Parliamentary report has found.
The House of Lords Economic Affairs Committee says customers are getting a bad deal from a supply system that is complicated and uncompetitive.
The result is that consumer prices have rocketed by 58 per cent since 2003, and UK industry pays the biggest bills in Europe.
The study also raises concern about spare capacity and the deliverability of planned nuclear power. Peers used the report to call for decarbonisation to be managed at the lowest cost to consumers as such green policies accounted for 10 per cent of domestic bills in 2013.
The report states that the required switch of emphasis may mean waiting for new technologies to be developed to reduce emissions and making targets more flexible.
But the study insists that both affordability and decarbonisation must not be prioritised ahead of supply.
Government interventions in the market should be reduced by ensuring electricity generating capacity is secured through a single, technology-neutral, competitive auction for electricity supply in order to obtain the lowest costs for consumers.
Committee chairman Lord Hollick said: “Poorly designed government interventions, in pursuit of de-carbonisation, have put unnecessary pressure on the electricity supply and left consumers and industry paying too high a price.
“Domestic electricity bills in Britain have gone from being second-cheapest in Europe in the mid-2000s to the seventh-cheapest today. Britain’s high industrial electricity prices have led some energyintensive industries to relocate abroad. Low-carbon policies are a factor in these high prices.”
Lord Hollick expressed concern about investment in nuclear power and a rigid approach to de-carbonisation.
“Hinkley Point C is a good example of the way policy has become unbalanced and affordability neglected. It does not provide good value for money for consumers and there are substantial risks associated with the project. The government must make sure that the security of the UK’S energy supply is the priority of its energy policy. Affordability must not be neglected and de-carbonisation targets should be managed flexibly.
“We would like to see the government step back from the market and allow all generating technologies to compete against each other. It should establish an Energy Commission to ensure competitive auctions have independent oversight and are scrutinised carefully.
“Renewables play, and will continue to play, a crucial part in energy policy. New clean technologies must be supported to be commercially viable.
“A new National Energy Research Centre would also help the UK to catch other countries up in the race to find cost-effective solutions to the challenges the world faces on energy.”
Scottish Gas-owner Centrica fuelled fresh controversy over energy prices yesterday after posting another profits rise at its UK supply business – while its boss warned against government intervention in the industry.
Centrica’s annual group operating profits climbed 4 per cent to £1.5 billion, helped by a 2 per cent lift in operating profits to £906 million at its energy and services arm covering the UK and Ireland.
The company’s British Gas residential energy supply arm – which only covers UK homes – reported an 11 per cent fall in profit to £553m, compared with £623m in 2015, partly due to a customer exodus.
The supplier lost more than 400,000 customers in 2016, marking a 3 per cent fall to 14.25 million, but said that it stemmed the outflow in the second half of the year by launching new tariffs and improving customer service.
Industry players are facing mounting pressure to treat customers fairly, having been criticised for being slow to pass on savings during dips in wholesale energy prices.
But Centrica chief executive Iain Conn warned the UK government against pursuing a price cap.
“We’ve got lots of people moving prices in different directions, we’re freezing ours, other people are putting theirs up. I think this is just a lot of evidence of a market that works,” he said.
“You’ve got to be very careful as a government if you want to start to price regulate, because if you start fixing prices, when are you going to stop?”
Conn added: “We lost customers in the first half of last year. We are seeing pressure on our profit margins because there are 50 suppliers out there.”
British Gas, including the Scottish Gas brand, has extended a price freeze on its standard energy tariff until August, one of three of the Big Six energy suppliers to have frozen standard tariffs in recent months. But energy customers generally are expecting prices to soar later this year following the Brexitinduced collapse of the pound and rising wholesale energy prices.
Rivals Scottishpower, Npower and EDF have all announced price hikes over the past few months. Energy regulator Ofgem is set to introduce a price cap on prepayment meters in April as part of industry reforms, but has so far stopped short of recommending a broader limit that would affect standard variable tariffs.
Centrica’s shares fell 3.7 per cent, one of the top FTSE 100 losers, as the company declared a flat dividend of 12p, after two previous years of dividend cuts.
However, Centrica said that lower for longer interest rates meant that its pension scheme liabilities had swollen to £1.14bn, up from £119m at end2015, meaning that it had less capital available to return to investors. “I can’t say if it [a divi increase] will be in the final 2017 or not,” Conn said, saying that the company would keep the issue under review.