Profits are up at British Gas. The energy supplier is set to make £541m this year, massively up from £379m the year before. Its parent company, Centrica, is expected to report a full year operating profit of £1.84bn. That is an outrage at a time when wholesale oil and gas prices are at a three-year low and yet the bills being paid by ordinary householders are staggeringly high.
Most people will feel it is easy enough to see where the big profits come from. When oil prices went through the roof two years ago, the large suppliers immediately raised their prices to the public to match. Centrica, the UK's largest domestic supplier, with 16 million residential customers, announced the biggest price hike ever by a British energy firm. It slapped 35 per cent on the price of gas. Since then the wholesale cost of gas and electricity has halved but domestic bills have fallen by only 4 per cent. And British Gas has announced that prices are to rise next winter and then again the year after.
Such profiteering is little short of scandalous. And yet Ofgem, the most useless of the government's regulators, has done almost nothing about it. Instead it parrots industry PR about how since privatisation two decades ago prices have fallen in real terms and customers' bills have been reduced by £1bn per year. The truth is that privatisation has been a failure because public monopoly has been replaced only by private oligopoly. The number of suppliers has fallen from more than 20 in the late 1990s to six dominant conglomerates today. Bodies that big, and that few, do not need to collude; they have a confluence of interest which creates market failure. Their 4,000 different tariffs renders meaningful comparison – and therefore true competition – impossible.
The job of Ofgem should be to ensure that retail prices in the industry track international energy prices. To that end it must enforce greater transparency on the industry about how prices are calculated so consumers can tell whether they are being offered value for money set against the international market price. Instead, it seems to accept industry blandishments without question. It needs massive and immediate reform.