As customers feel the pinch, energy firms' profits surge

British Gas expected to make 30% more than last year after keeping tariffs high despite plummeting costs
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The Independent Online

Britain's two domestically-owned energy giants, British Gas and Scottish & Southern, are expected to report significantly higher profits to the City in coming months as they reap the benefits of high retail prices.

Next month Scottish & Southern will announce half year profits much greater than the same period last year, when it made £302m. In February, profits at Centrica's British Gas business are expected to rise by at least 32 per cent from last year's £379m to £500m.

Both companies insisted yesterday that the higher profits followed a poor year last year when they kept back some of a spectacular surge in wholesale prices from customers. However the profits rises are likely to prompt fresh demands for price cuts.

The Independent launched a campaign this week against the Great Energy Rip-Off, calling for lower prices and regulatory action against firms that withhold cuts in wholesale prices.

Although the regulator Ofgem last year cleared suppliers of artificially inflating retail prices, a study by the publicly funded watchdog Consumer Focus this year suggested they were overcharging average users by £96 a year.

David Hunter, an expert at Britain's biggest independent energy analyst, estimated bills were at least 10 per cent too high, or £120 a year.

By buying cheap wholesale energy, two new companies First:Utility and OVO Energy have entered the market in the past month with cut-price internet deals of £954 and £978 respectively. Some 1.3 million customers are on relatively cheap internet tariffs with the Big Six costing between £961 and £1,009. However 95 per cent of homes are on a Big Six direct debt, standard or pre-payment tariff averaging between £1,140 and £1,240.

Four of Britain's energy suppliers – Npower, E.ON, EDF Energy and ScottishPower – are owned by foreign utility giants, who have been accused of treating the UK like a "Treasure Island".

With the exception of EDF Energy, direct debit tariffs with the British-owned companies Scottish & Southern and British Gas, are cheaper than their foreign-owned competitors.

However because of the difficulty of tracking profits from Big Six suppliers within Continental empires, the UK-owned firms give the best clue about the profitability of the UK energy market, even though their margins may be lower.

According to one forecast, Scottish & Southern's interim profits will be £600m, double last year's figure.

Last night S&S declined to comment in detail because it has entered its closed period, but it confirmed its numbers would be "significantly higher".

Referring to its previous statements to the Stock Exchange, spokesman Justyn Smith said: "As stated on 23 July and again on 28 September, SSE's adjusted profit before tax for the six months to 30 September 2009 is expected to be significantly higher than in the same six months in 2008, when it was exceptionally low.

"It is very misleading to suggest that all profit comes from the energy supply business," he said, adding that 38 per cent of profits were unrelated to household supply.

Stockbrokers are forecasting British Gas profits of £500m, the second highest profit the firm would have made in the last five years. In the past five years, its results have ranged from £90m to £571m. In a statement to the Stock Exchange in July, Centrica revealed that in the first half of the year operating profits at British Gas jumped 56 per cent to £476m as a result of low wholesale prices and high winter demand.

Mish Tullar, Centrica's group media relations director, dismissed any suggestion that British Gas was making excessive profits. A forecast profit margin of 6.5 per cent, he said, was the same as Tesco, and below the 11 per cent for oil giant BP and 15.2 per cent for Sky.

Price comparison websites are urging households to switch to a better deal. Internet tariffs, where bills are emailed rather than posted, are cheapest, averaging £990 a year.

Scott Byrom, utilities manager at, said: "It is crucial that consumers find the best energy tariff for their region and usage now to safeguard themselves against receiving expensive winter bills.

"If still languishing on a standard tariff, by moving to an online deal they could save £240 a year."

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