Consumer uproar over profits prompts Ofgem to investigate energy industry

22 February 2008 / by Rachael Stiles
Consumer dissatisfaction with the record profits announced by British Gas, just weeks after raising its prices by 15 per cent, has encouraged a move from energy watchdog Ofgem to investigate the energy industry.

Ofgem has not said that its decision to probe the industry is directly linked to the above-inflation rises in energy prices by gas and electricity suppliers, but it is thought that public and political pressures have both played a part in sparking the investigation.

Ofgem's chief executive, Alistair Buchanan, said that they are "concerned about the increased volatility of wholesale prices" and want to "investigate how European and other global energy market developments are affecting energy bills in Britain."

Centrica, which owns British Gas, announced profits of £1.9 billion for last year, largely as a result of increases in its residential energy supply business. However, British Gas is not the only one to raise its prices; five of the UK's six big energy providers have raised their tariffs this year, each blaming the rising price of wholesale gas for the higher fuel bills.

Chairman of Centrica, Roger Carr, blamed "wholesale energy prices" which "remain extremely volatile", and the "high gas price at the start of 2008" for the hikes in household energy bills. "In these circumstances retail price increases have been necessary in order to restore reasonable margins." he said.

Adam Scorer, Director of Campaigns at energywatch, said: "No-one is going to argue that energy companies don’t need to make a profit. However, British Gas customers will want to tear their hair out when they hear the scale of these profits and compare them with their own rising bills."

He continued: "It is perfectly true that there is volatility in wholesale energy markets. But it seems equally true that such volatility hits consumers not shareholders. Consumers will feel justified in claiming that they are being taken for a very rough ride by energy companies."

In the past, Ofgem has lauded the competitiveness of Britain's energy market for consumers, citing the high level of customers which switch energy providers, often using price comparison websites. But many vulnerable individuals may not have access to such services and will therefore not be able to pursue competitive prices with such ease. Additionally, if all the major players are upping their tariffs, then consumers can switch till the cows come home and they'll still be paying through the roof to heat their homes.

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