💎 Fed’s first rate cut since 2020 set to trigger market. Find undervalued gems with Fair ValueSee Undervalued Stocks

UPDATE 2-UK utilities face review after recent price hikes

Published 11/26/2010, 07:00 AM
Updated 11/26/2010, 07:04 AM

* Energy retailers margins surge 38 percent since September

* Ofgem may change energy market rules in consumer interest

* Analysts say major change to energy market unlikely

* Centrica down 2.4 percent, vs FTSE 100 down 1.7 percent

* Scottish & Southern down 1 percent

By Jonathan Gleave and Una Galani

LONDON, Nov 26 (Reuters) - Britain's retail energy market will be reviewed after recent price hikes pushed up operator's profit margins, energy regulator Ofgem said on Friday.

Analysts said a major change to energy market rules was unlikely because rises in wholesale gas prices over the summer have depressed suppliers' profits for the year as a whole.

Energy retailers' margins on combined gas and electricity bills have surged 38 percent to 90 pounds since September, which Ofgem said had prompted it to launch a new three-month review due in March which uses new details available to the regulator.

"We have more information on the companies because they are now required to publish their retail accounts. Obviously the recent price rises from the companies have given us a kind of warning light," Ofgem spokeswoman Alison Wright told Reuters.

British Gas-owner Centrica and Scottish & Southern Energy, which account for 60 percent of the market and both recently raised gas and electricity prices, saw their share prices fall after the news.

"Any review is normally aimed at identifying any excess profitability, which is negative. But it will be tough to argue that Scottish and Southern was making unfair profits at its gas business," said analyst Nick Hyslop at RBC Capital Markets, adding the group's gas business has lost money in 2010.

Hyslop said it may also be difficult to prove unfair profitability at Centrica as he has been forecasting a fall in profit at its gas business due to a 25-35 percent increase in gas prices over the summer.

Prime Minister David Cameron's spokesman welcomed Ofgem's review.

"They are doing exactly the right thing looking into the effectiveness of this market and how it is working and whether it is working from a consumer's perspective."

Ofgem and the utilities have had similar clashes in the past. In August 2009, Ofgem called on energy companies to explain why their retail prices had not fallen further despite a steep drop in wholesale gas and electricity prices during the year.

Gas retailers usually sign forward contracts with wholesale suppliers which means that gas being bought at today's prices may not be used until next year.

UK utilities have also defended their profit margins by highlighting that that they need to spend over 200 billion euros ($265.2 billion) over the next decade on rebuilding their energy infrastructure.

AT 1039 GMT, Scottish and Southern was down 1.0 percent, while Centrica shed 2.4 percent. The STOXX Europe 600 Utilities index was down 0.9 percent.

The other big utilities in Britain -- RWE npower, E.ON UK and EDF have not yet announced price rises this winters, while Scottish Power, controlled by Spain's Iberdrola, has raised both retail gas and power prices. ($1=.7540 Euro) (Additional reporting by Keith Weir; Editing by Jon Loades-Carter)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.