Big Six energy firms face investor exodus over political interference in pricing

 

Fund managers controlling billions of pounds invested in UK energy companies have warned that they are considering pulling out of the sector because of political interference in the market.

The Big Six suppliers have  been heavily criticised in recent weeks over the prices they are charging customers, with Centrica, npower, Scottish Power, SSE, E.ON and EDF – many of which have recently introduced above-inflation price rises – being accused of exploiting vulnerable consumers while at the same time making huge profits.

The controversy prompted the Labour leader, Ed Miliband, to promise a price freeze for 20 months if his party wins the 2015 election. In response energy companies claimed any such action would curtail their ability to invest and could even lead to blackouts. The threat of political intervention has hit the share prices of the Big Six, and raised questions about future profitability. The speculation has angered some of the country’s leading institutional investors, who have said privately that they will act if the meddling continues.

Another fund manager, James Smith of Premier Asset Management, said: “We run a couple of funds that have exposure to utilities across the world, including the UK where shares have fallen in recent weeks. We are considering whether things are going to get worse because if they do we might need to reassess our strategy relating to our UK investments.

“It’s right to talk about affordability but it must be done in the right way. We can’t view utilities as charities – you won’t find many private companies out there that aren’t looking to charge the most they can on whatever product they make or supply. It is right for regulators to ensure that the market is operating in a competitive manner. The alternative to the status quo – nationalisation – would be unlikely to reduce prices.”

The debate over energy costs is set to intensify in the run-up to George Osborne’s Autumn Statement on 4 December, when the Chancellor is expected to roll back the green levies imposed on energy companies. Such action has been vehemently opposed by the Liberal Democrats, with the Energy Secretary, Ed Davey, saying that he would fight “like a tiger” to preserve the incentives, which increase bills while promoting energy efficiency.

The energy company obligation (ECO) – which requires the Big Six better to insulate the homes of Britain’s poorest households – will add £47 a year, or 4 per cent, to an expected average bill of £1,267 in 2013, while the warm home discount, which entitles some vulnerable people to a £135 discount, and the rollout of smart meters will add another £11 and £3 respectively to the average bill this year.

Chris Murphy, UK equity income manager at Aviva Investors, said: “Profit-making is not a bad thing. Energy companies are required to source a specified proportion of the electricity they supply from renewable sources. The decommissioning of coal-fired plants and the investment in alternative [methods of generation] is expensive.

“Energy companies have to be allowed to make profits to fund the costs of this reinvestment, and naturally, some of these costs will be passed on to the consumer. If energy companies are not allowed to make a profit, there will be under-investment in alternative energy in the UK and we will have an energy crisis on our hands,” he said.

The issue of investment and profits is a contentious one, however, with experts interviewed by The Independent last week pointing out that the retail arms of the Big Six are likely to require little in the way of capital expenditure given that they amount to little more than call centres, while the power generation arms of the companies enjoy profit margins that in some cases exceed 30 per cent.

Investors say they are particularly angry at the comments from Mr Miliband given his role as Secretary of State for Energy and Climate Change under the last Labour government. Mr Smith added: “He is ignoring the role he played in increasing the environmental costs faced by utilities. Nor does his sticking-plaster approach do anything to address why prices are rising. Perhaps he will legislate to stop supermarkets increasing the price of bread when wheat prices increase?”

Excess profits? firms to unveil results

The British Gas owner Centrica and its rival energy giant SSE unveil their latest financial figures today.

The suppliers are under pressure over price increases for consumers after Labour challenged the Government by pledging to freeze tariffs if it wins power. Critics have challenged the assertion that rising wholesale energy costs and green levies are to blame for the sharp price rises. Centrica’s chief executive Sam Laidlaw has decided not to take his bonus this year, which could be worth up to £1.7m. He announced his decision after British Gas revealed last month that electricity bills were to rise by 10.4 per cent and gas tariffs by 8.4 per cent. The move affected 7.8 million households.

News
people
News
people
News
peopleStella McCartney apologises over controversial Instagram picture
Life and Style
Laid bare: the Good2Go app ensures people have a chance to make their intentions clear about having sex
techCould Good2Go end disputes about sexual consent - without being a passion-killer?
PROMOTED VIDEO
Arts and Entertainment
Richard Burr remains the baker to beat on the Great British Bake Off
tvRichard remains the baker to beat as Chetna begins to flake
News
i100
Sport
footballArsenal 4 Galatasaray 1: Wenger celebrates 18th anniversary in style
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
News
people
News
The village was originally named Llansanffraid-ym-Mechain after the Celtic female Saint Brigit, but the name was changed 150 years ago to Llansantffraid – a decision which suggests the incorrect gender of the saint
newsA Welsh town has changed its name - and a prize if you can notice how
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Kristen Scott Thomas in Electra at the Old Vic
theatreReview: Kristin Scott Thomas is magnificent in a five-star performance of ‘Electra’
News
Destructive discourse: Jewish boys look at anti-Semitic graffiti sprayed on to the walls of the synagogue in March 2006, near Tel Aviv
peopleAt the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Life and Style
Couples who boast about their relationship have been condemned as the most annoying Facebook users
tech
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Italian couples fake UK divorce scam on an ‘industrial scale’

Welcome to Maidenhead, the divorce capital of... Italy

A look at the the legal tourists who exploited our liberal dissolution rules
Time to stop running: At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity

Time to stop running

At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

The vintage series has often been criticised for racial stereotyping
An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

An app for the amorous

Could Good2Go end disputes about sexual consent - without being a passion-killer?
Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

Llansanffraid is now Llansantffraid

Welsh town changes its name, but can you spot the difference?
Charlotte Riley: At the peak of her powers

Charlotte Riley: At the peak of her powers

After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
She's having a laugh: Britain's female comedians have never had it so good

She's having a laugh

Britain's female comedians have never had it so good, says stand-up Natalie Haynes
Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

Let there be light

Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
Great British Bake Off, semi-final, review: Richard remains the baker to beat

Tensions rise in Bake Off's pastry week

Richard remains the baker to beat as Chetna begins to flake
Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

A look to the future

It's time travel fashion at Louis Vuitton in Paris
The 10 best bedspreads

The 10 best bedspreads

Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
Arsenal vs Galatasaray: Five things we learnt from the Emirates

Arsenal vs Galatasaray

Five things we learnt from the Gunners' Champions League victory at the Emirates
Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence