Energy Price Freeze : The Broken Market

30 October 2013

New figures from the energy regulator Ofgem have provided serious problems for the energy companies’ defence of escalating gas and electricity prices for sceptical consumers in a broken market.

While wholesale prices rose last year by 1.7 per cent, energy prices for consumers have increased on average by just over 9 per cent

Ofgem indicates that while the portion of consumers’ bills attributable to the rise in wholesale prices was £10 annually, the average net profit margin of the energy companies has risen from £45 to £95 per household.

Consumers dislike the current market set up and regard it as broken because of lack of real competition, ever-rising prices in a captive market, the same excuses offered when prices are put up and executive pay .

While millions worry whether or not they can meet the cost of their next gas and electricity bill, the Chief Executives of the big energy companies enjoy super-salaries.

Centrica/British Gas' CEO is paid over £5,000 a day after tax while last year SSE's CEO , was reported to have  “earned a total package of more than £2.63m in the last year”, according to the BBC in April

The companies warn that the consequences of Ed Miliband’s price freeze would see investment levels drop and the lights going out.

In response, here is what Tom Burke has to say.

He is a former special adviser to three Conservative secretaries of state for the environment, and Director of Friends of the Earth and the Green Alliance 

“Keep two key points in mind as you listen to this argument.

"First, when you drill down into company accounts you see that some of the companies with the highest profits are investing the least in new plants.

"Rather than plough returns into a broken energy market they have opted to pay out dividends.

"Centrica has made the highest profits but 74% of this has gone back to shareholders.

“Across the "Big Six", an average of 56% of their profits are going into dividend payments.

"This is a perfectly legitimate business strategy if there is no urgent need for investment.

"But it certainly questions the link between higher profits and investment.

“If there are no value-creating projects to invest in, you cannot argue that the lights will go out if you don’t invest.”

Public opinion is certainly on the side of Ed Miliband and his energy price freeze plan.

The same cannot be said for the standing of energy companies in the eyes of the public.

The latest YouGov poll found that 68 per cent of the public said that they did not trust the banking sector.

For the energy companies, the number expressing little or no trust in them was 84 per cent.

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