Energy giants shrug off Huhne's threats on bills

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The Independent Online

City analysts rejected claims by the Energy Secretary, Chris Huhne, that his crackdown on the "big six" would lower utility bills, as investors pushed up shares in Britain's main gas and electricity providers yesterday.

Consumer and environmental groups generally welcomed Mr Huhne's proposals, which include measures to promote competition, but analysts and investors doubted whether they would result in lower prices.

Reflecting the belief that the bottom lines of the big six providers would be little affected, shares in Centrica, which owns British Gas, jumped by 7.1p, or 2.4 per cent, to close at 300.2p. Shares increased by 3 per cent, to 1,326p, at Scottish and Southern, and by about 4 per cent at RWE, which owns Npower and E.ON, both listed in Germany.

Lakis Athanasiou, an analyst at Evolution Securities, said: "This is frankly hot air and the markets seem to be saying that as well. People are obviously concerned with rising energy prices and the government wants to be seen to be doing something and to deflect attention from the subject. These announcements might be an easy win with the media. But with energy suppliers' profit margins running at around 5 to 6 per cent, it is unlikely they will choose to sacrifice margin."

The big six generate most of Britain's energy as well as supplying the vast majority of it. This gives them scope to reduce the prices they charge households by cross-subsidising their supply arm with the profits from the energy generation business.

However, analysts said that profits on electricity generation are being squeezed by rising gas, oil and coal prices, as well as by excess capacity and the costs associated with new environmental requirements.

Angelos Anastasiou, an analyst at Investec, said: "It's quite a tough market for energy generation at the moment. There have been times when it's made huge profits, but not now."