Centrica chief defends shareholders’ claims bosses raking in £16m in pay and bonuses from putting up the price of heating
British Gas has been accused of being at the heart of an “evil empire” making hundreds of millions of pounds out of the misery of pensioners and vulnerable people forced to “choose between heating and eating”.
Sir Roger Carr, chairman of British Gas owner Centrica, was repeatedly forced to defend the company’s reputation at its annual meeting after a string of shareholders accused company bosses of raking in £16m in pay and bonuses from putting up the price of heating.
The company said the “strong performance” from the cold winter put it on course to deliver full-year pre-tax profits of £602m.
John Farmer, a well-known private shareholder, said the company was being “vilified” by customers fed up with the “evil big six [energy firms] out to exploit”.
Carr replied to the packed meeting in central London: “Are we the evil empire?
“We are an extremely responsible and thoughtful company … We are a good business doing good things for this country.”
He said British Gas, which yesterday revealed the cold winter had led to an 18% jump in household gas usage in the first four months of the year, was “not seeking to profit from the extreme winter”.
Carr admitted that this would feed through to “higher costs [ for consumers] at a time when people are already hard-pressed”.
However, he promised that the company was not viewing the increase in customers’ bills as “a little bit of a bonanza” that it will “squirrel away”.
He promised to use the extra cash to freeze prices “for as long as possible”, but was unable to give any indication of how long such a freeze would remain.
British Gas imposed a 6% price rise last November, adding £80 to the average annual gas and electricity bill for the 8.4m households it serves.
“We will wait and see how much extra money [we make],” Carr said. “[And] some of that will be used to keep prices competitive – that’s the right thing to do”.
Ruth London, a pensioner and Fuel Poverty Action campaigner, accused the company of not doing enough to help the 7,200 people it has been claimed died last year because they could not afford to heat their home. “Thousands go without food, so they don’t freeze,” she said. “They are forced to choose between heating and eating, sometimes [going without] both, and in some cases dying. While your profits go up.”
Carr, a former chairman of Cadbury’s, said: “Frankly if it’s one customer, one person [dying] that’s enough to be concerned about – these things are seriously important.”
He said British Gas tries to help the vulnerable and does not “shut people down because they’re at their wit’s end and their wealth end and we try to work in a constructive way to help people like that”.
But he also said: “We are not a welfare operation, we have to make money.”
Carr added: “We are a business, that’s what you invest in us for. We try to do the right thing for all our stakeholders and the vulnerable are right at the top of the list.”
Centrica’s chief executive, Sam Laidlaw, earned a basic salary of £950,000 last year, but bonuses pushed his take-home pay to almost £5m.
Carr said Laidlaw earns 63 times the amount of the lowest-paid employee in the group. He said that was reasonably below the Church of England’s recommended maximum discrepancy of 75 times, joking: “I hope Sam isn’t going to put in for an increase.”
The company said shareholder votes counted before the meeting got under way showed 93% in favour of its pay policy.
Carr went on to hit out at politicians and the media for using the big six energy firms as an “easy target” to whip up public anger.
“The phrases ‘rip off’ and ‘energy companies’ seem to have been entwined forever,” he said. “[But] we are the cheapest energy provider in Europe.”
He acknowledged that after a series of scandals, including the gas price-rigging investigation prompted by a story in the Guardian, the energy industry has “an image problem, media problems and sometimes political challenges”.
Centrica says it will try to avoid more price rises for as long as possible as it faces protests at annual meeting on Monday
British Gas’s owner, Centrica, enjoyed a huge boost from the cold snap as consumers turned up the heating, driving consumption up by almost a fifth compared with last year.
The company, which raised prices by 6% shortly before the harsh winter set in, said any benefit from the “exceptionally cold weather” would be used to prevent further price rises “for as long as possible”.
The finance director, Nick Luff, said: “The fact is we make a margin selling gas. We will have made a higher margin because of the extra volume and we will use that to keep prices down during the rest of the year.”
But he said the cost of implementing the government’s energy efficiency scheme and higher transport costs would hit profits, while the gas price remains unpredictable – meaning there may be little extra to invest in keeping prices low.
The energy comparison and switching service uSwitch.com still welcomed the news at a time when consumers are struggling to pay bills. Ann Robinson, director of consumer policy at uSwitch.com, said: “British Gas has recognised the pressure facing customers and is using the financial gain from the extended cold weather to maintain its competitiveness. In plain English, this means that British Gas customers should expect no further increase in prices at least for the foreseeable future.”
Centrica faces protests at its annual meeting in London on Monday afternoon as campaigners gather to challenge the company on price hikes, multimillion-pound payouts to British Gas bosses and plans for a new generation of gas power stations instead of cheaper, clean renewable energy.
Households’ average gas consumption was 18% higher in the first four months of 2013, compared with the same period last year, while electricity consumption was 3% higher. Residential customers in the UK also rose by 28,000 in the first four months of the year, which Centrica put down to competitive pricing and good customer service.
The company said this “strong performance” put it on course to meet expectations and deliver full-year profits before tax of £602m, down 1% on last year.
As an oil and gas producer, Centrica also benefited from higher commodity prices, and the group’s full-year earnings after tax are expected to be 2% higher at £1.4bn.
• Guardian energy comparison service: see how much you can save
Many British Gas customers on a heavily promoted fixed-price deal would have done better on the standard tariff
Thousands of British Gas customers who signed up for one of its fixed-price tariffs two years ago have, in effect, been overpaying for their gas and electricity since then, it has been claimed. In some cases they have paid £800 more than if they had taken a rival deal.
In May 2011 British Gas contacted many of its long-standing customers to offer them a new tariff called Fixed Price March 2013. At the time, the company was just about to increase prices, but offered this deal on the basis that it was more expensive than standard prices, but there would be no hikes until it expired at the end of March.
It was marketed, in particular, to those coming off previous British Gas fixed-price tariffs as offering them peace of mind. But while thousands of other households coming off rival fixed tariffs will soon be paying more for their energy, those who signed up to this particular deal will see their prices fall after being moved on to British Gas’s standard tariff.
With the average household energy bill having risen to an estimated £1,350 a year, and against a backdrop of energy chief executives constantly warning that bills are only set to increase, experts often suggest that the best bet is a fixed-price tariff.
In recent years all the big energy firms have offered fixed-price and guaranteed-discount tariffs in a bid to keep hold of customers. While those on other British Gas fixed tariffs have done well in the past, those unlucky enough to have signed up to this deal have overpaid.
According to an analysis by the switching comparison site TheEnergyShop.com, they have typically paid £480 more than they would have done had they been on the most competitive fixed price tariff offered by rivals.
Those living in households that consume above-average amounts of power could easily have overpaid £800 or more over two years. Had they stayed on the company’s standard tariff they would have still paid less, even though it has seen two price rises in the past two years
Joe Malinowski, founder of TheEnergyShop.com says: “This tariff was sold to British Gas customers who were coming off previous fixed-price deals, but it was a just a terrible deal,” he says. “It was offered at an initial 30% price premium over standard prices but was only available direct from British Gas.
“If your energy company phones telling you it’s got a great new fixed-price deal, it should send alarm bells ringing. Go online and do a comparison, and you may find it’s not quite as good a deal as you were led to believe.”
A spokeswoman for British Gas says: “Fixed-price products are offered to customers to insure against price rises and to guarantee the price they will pay for their energy for a fixed period. Customers can make a choice about the product they decide to buy, and in many cases this will prove to be a better long-term option. But prices can go down, as well as up.”
She adds: “With our new ‘tariff check’ we write to our customers every six months to tell them if a better deal is available, and customers have the option to switch to cheaper products. These fixed products are based on the price at which we buy the energy at the time. We purchased the energy for Fixed Price March 2013 during a volatile period in 2011 when the price of energy was high.”
Meanwhile, it is not just large numbers of British Gas customers who are coming off fixed-price deals. Malinowski says that in the five weeks up to 1 May 2013, 20 tariffs from the big six energy suppliers have come to an end. When they expire, customers are usually pushed on to the supplier’s standard tariff, resulting in some hefty increases.
Worst affected will be those coming off npower’s Go Fix 11 product, who will see bills rise by 21%, or £214, on average. They are followed by those ScottishPower customers coming to the end of Online Fixed Price Energy May 2013 (£190 average increase, equivalent to 18%) and then EDF Energy customers coming off Fix to March 2013 (£171 average increase, equivalent to 16%). Those on these deals have saved the most during their term.
“If you have recently come off a cheap deal, or are about to, you really need to shop around. If you don’t, it will cost you serious money,” Malinowski says. “And don’t be conned by your own energy supplier saying they will look after you. They won’t, because they can’t offer you all the best deals in the market.”
If you want to fix prices, EDF Energy’s Blue+Price Promise February 2015 dual fuel deal is currently one of the best on the market. It is cheaper than many standard deals now, but it fixes prices until February 2015. What’s more, there are no penalty charges – often a feature of such deals – if prices change significantly down the line and you want to leave.
• Householders looking to switch supplier have a new name to choose from: Ipswich-based Flow Energy. Its Thames online tariff, which offers fixed prices until September 2014, could be a good option – but few will have heard the name before.
Flow is part of Energetix plc and was set up by members of the team behind Atlantic Electric and Gas, which was eventually bought by Scottish and Southern Energy.
The only risk of using an energy firm that is new to the market comes if you have built up a large credit balance. In the unlikely event that it went bankrupt, you would probably lose some or all of that balance.
Business minister Michael Fallon says privatisation of postal service is a ‘practical, logical, commercial decision’
Business minister Michael Fallon has fired the starting gun on a £3bn privatisation of Royal Mail and described the sell-off as a “practical, logical, commercial decision”.
At least 10% of the shares will be handed to Royal Mail employees, but the government refused to say whether staff would get the shares free or at a discount.
“I strongly believe that employees should share in the company’s future success and dividends,” Fallon said in a speech to the Policy Exchange thinktank on Monday night. “And it is our intention to have such a scheme in place at the time we conduct a sale of Royal Mail.”
It will be the largest employee share scheme since the privatisation of British Gas 26 years ago. About 140,000 postmen and women and delivery office workers are expected to each collect shares worth about £1,500 on average.
The public will also be able to buy shares alongside banks and institutional investors. The government is likely to launch an advertising blitz along the lines of the “Tell Sid” campaign to encourage the sale of British Gas shares in 1986.
Fallon said that unless Royal Mail passed into private hands, it would not be able to access equity markets, without which “every £1 it borrows is another £1 on the national debt”.
The sell-off will formally begin on Tuesday with the government issuing tendering documents to banks to prepare for Royal Mail’s flotation on the London Stock Exchange before April 2014. It is the most ambitious sale of a state-owned business since the railways were privatised in the 1990s.
The Department for Business, Innovation and Skills said it was attracted to an initial public offering (IPO) flotation as “the preferred method of sale”, but Royal Mail could be sold to a trade buyer, sovereign wealth fund or private equity house.
Margaret Thatcher, who privatised British Gas, British Airways, British Telecom and dozens of other state-owned institutions in the 1980s, famously refused to countenance a sale of Royal Mail, saying she was “not prepared to have the Queen’s head privatised”.
But Fallon, Tory MP for Sevenoaks, said the government’s decision to go ahead with the sale of the 497-year-old postal service was “not based on ideology”.
The Communication Workers Union (CWU) said postal workers oppose privatisation, which “not even Thatcher dared do”. Billy Hayes, general secretary of the CWU, said: “Privatisation is an old-fashioned idea. We don’t believe it’s in the interests of customers, the workforce or the wider industry. We want a modern Royal Mail in full public ownership and able to deliver the universal service six days a week to all parts of the UK.”
He said postal workers would not “sell their soul” for a 10% stake in the company. “Postal workers up and down the country know there are no free lunches,” he said. “What they want is real money in their pockets. Postal workers know that privatisation would mean the break-up of the company, more job losses, worse terms and conditions and attacks on their pensions. It would be a wrecking ball to the industry they work in.”
“A change of ownership in Royal Mail will not mean that Royal Mail can stop delivering to rural areas,” he said. “Royal Mail will remain the UK’s designated universal postal service provider and must continue to provide a six-day-a-week service throughout the UK.”
A forerunner to Royal Mail was set up by Henry VIII in 1516. The General Post Office (GPO) was established in 1660 and adhesive postage stamps introduced in 1840.
Co-operative Energy bucks trend with 2% cut in electricity bill as five of Big Six suppliers raise energy prices by early December
British Gas’s 8.5 million customers are now paying an extra £80 a year for their gas and electricity, taking the average annual dual fuel bill to £1,336. The price rise, introduced on Friday 16 November, comes just over a week before 3 million npower customers see their gas and electricity prices increase by 8.8% and 9.1% respectively.
Co-Operative Energy has thrown its 60,000 customers a lifeline by slashing the price of electricity. But by early December, five of the Big Six energy companies will have introduced price rises, affecting a collective 25 million households and plunging “tens of thousands” of households into fuel poverty.
The situation could deteriorate further when E.ON announces a widely expected price rise in the next fortnight. E.ON had previously declared there would be no increase in prices in 2012, but is expected to raise prices in line with its competitors as soon as it can, which would be on 1 January 2013. With suppliers required to give 30 days’ notice to customers, this would mean an announcement is imminent.
Audrey Gallacher, director of energy at Consumer Focus, said: “Tens of thousands more households will be pushed into fuel poverty by the increases and face difficult choices between putting the heating on or putting a meal on the table.”
Consumer Focus research shows that 6m households in England were already planning to cut back on their heating due to bill worries before the price rises were announced.
The Financial Services Authority is currently investigating claims by a whistleblower that the £300bn wholesale gas market has been “regularly” manipulated by some of the big power companies, something that has angered consumer groups.
The Fuel Poverty Action group is to stage a demonstration on 29 November, the day the government releases winter death statistics for last year. A spokesman said: “After what we’ve heard this week about gas market manipulation, British Gas’s price hikes may be the final nail in the coffin for people this winter. This corruption and greed has a direct human cost.”
But it’s not all bad news for consumers. Co-operative Energy has bucked the trend by announcing a cut in electricity prices of 2% from 21 December 2012. The firm says this makes it £88 cheaper than the average Big 6 online dual fuel tariff and will mean its electricity prices for winter 2012-13 are lower than they were for winter 2011-12. However, while Co-op is cheaper than three of the Bix 6 for dual fuel, it remains more expensive than many other providers, with First Utility and npower the best-buy providers.
Consumer groups greeted Co-op’s announcement with relief. Which? executive director Richard Lloyd, said: “This is welcome news from The Co-operative Energy at a time when millions of household budgets are squeezed. Customers being hit hard by big suppliers’ price rises should now ask why it is that The Co-operative Energy can buck the trend.”
Audrey Gallacher agreed: “It is likely to add more fuel to the fire on consumer questions over whether the price rises from the major suppliers are justified.”
Energy regulator Ofgem recently announced plans to force suppliers to inform householders about their cheapest deals and greatly simplify the number of pricing plans as part of what it is calling the biggest shakeup of the market for domestic energy in more than a decade, though consumer groups are urging much greater transparency in the energy industry if customers’ lack of trust is to be tackled.
People who are worried about energy costs should first find out if they are eligible for free help with insulation to keep bills to a minimum– either from the Warm Front Scheme or from an energy supplier.
Warm Front offers heating and insulation measures worth up to £3,500 (£6,000 if you need oil central heating), which can cut bills by up to £600 a year. Call 0300 123 1234, visit a local Citizens Advice Bureau, or visit www.direct.gov.uk.
Failing that, check if you are able to get free or discounted insulation from your energy supplier. EDF Energy, for example, is offering free insulation to all customers and a £200 incentive to low-income households that register for free insulation; npower has extended its free insulation deal to all customers. Both the above schemes are still open but be aware that some companies’ offers have expired.
At a glance: Big Six energy price rises this year
15 October SSE raises prices by 9%
16 November British Gas raises gas and electricity prices by 6%
26 November Npower will raise gas and electricity prices by 8.8% and 9.1% respectively
3 December Scottish Power will raise prices by 7%
November/December E.ON expected to announce a price rise to kick in from January 2013
Owner Centrica expects profits at British Gas, which puts its energy prices up this week, to hit £575m
British Gas-owner Centrica said it is on track to make £1.4bn profits after tax this year, as its customers prepare for a 6% rise in their energy bills on Friday.
The company told shareholders on Thursday that British Gas profits would rise by 6% this year to £575m. Its UK residential services business, which involves fixing people’s boilers, is set to deliver double-digit profit growth. But Centrica said the gloomy economic climate meant customers were putting off getting new boilers, with installations down 16% in the first 10 months of the year.
Colder weather than normal, after an unusually warm 2011, prompted Britons to turn up the heating earlier this year, driving a 9% rise in gas consumption over the past 10 months. The company noted there had been a slight reduction in demand after customers wake up to the benefits of energy efficiency. British Gas announced last month that it would increase domestic gas and electricity prices by an average of 6%, which will come into force on Friday.
Energy regulator Ofgem recently announced plans to force suppliers to inform householders about their cheapest deals and greatly simplify the number of pricing plans as part of what it is calling the biggest shakeup of the market for domestic energy for more than a decade.
Centrica said the “majority of these proposals are a positive step forward for the industry” but added that “it is important to ensure that the proposals on product range do not restrict customer choice and market innovation”.
Elsewhere, the company said the weak economy had hit its UK business energy supply division. Centrica’s two biggest businesses are the “upstream” unit – oil and gas production as well as eight power UK power stations – and the “downstream” operation that provides energy to homes and businesses, including British Gas. Upstream, Centrica said it has completed all three of the North sea acquisitions announced between November 2011 and February 2012, and its nuclear power stations continue to perform well. Overall, group profits after tax are expected to rise by 5% this year.
The UK gas industry is in the middle of a firestorm, as the Financial Services Authority investigates claims by a whistleblower that the £300bn wholesale gas market has been “regularly” manipulated by some of the big power companies. Centrica said in a statement this week that it had “very robust” governance and compliance policies, which regulated its market participation and behaviour.
Five of the big six companies have raised bills recently, all blaming their actions in part on the current wholesale price
Five of the big six energy companies have raised their gas and electricity prices in the last two months, with British Gas, E.ON, Scottish Power, npower and EDF all blaming the current wholesale price as one of the reasons for raising household bills.
Since whistleblower Seth Freedman’s allegations that the wholesale price has been manipulated, energy price comparison experts believe this could have an impact on the amount consumers and businesses pay for their power supply.
Joe Malinowski, founder of consumer price comparison site TheEnergyShop.com, who also worked as an energy analyst, explained that more than 50% of the cost an individual’s bill is directly related to the wholesale price.
He said: “Energy suppliers have announced price increases this winter [and] all blamed wholesale energy market prices at least in part for the increase. So if the energy suppliers are saying it, then it must be true. Right?”
The date – 28 September – when the manipulation is alleged to have taken place, is also a key part of the story.
It is noteworthy because it was the last Friday before several major contracts with the big energy companies would come to an end. Therefore, if the price was artificially pushed down, the natural reaction would be that they would then rise again – giving the energy companies justification to claim that wholesale prices have risen.
James Constant, chairman of the price comparison website for businesses, EnergyForecaster.co.uk, explained: “It is interesting but by no means conclusive that in the immediate aftermath of the controversial date of 28 September we saw a drop in the gas price of some 2% and the month that followed saw an increase of 6%.
“October is also a particularly busy month for the business energy market, as it is one of the most common dates for contracts to be up for renewal. Someone has clearly benefited, but it’s equally clear that the average British business most certainly has not.”
With energy companies relying so heavily on the wholesale gas price movement for raising household bills, even companies such as Centrica, which produce their own gas from the North Sea, can benefit.
Malinowski explained: “British Gas buys a significant proportion of its gas from its own gas fields, but needs to set the transfer price of those purchases with reference to wholesale market benchmark prices.”
In other words, regardless of whether a company produces its own gas, it relies on the prices set by the traders alleged to have fixed the price.
“The domestic energy market is more insulated against individual price movements, due to the hedging strategies,” said Constant.
However, the benchmark figures on which the claims of manipulation are centred will still play a part in the energy companies’ decision to increase their bills. For businesses and publicly-run institutions such as hospitals and schools, the impact from manipulation could be far greater.
Constant explained: “The business energy market is very much exposed to even small fluctuations in price and if the resultant market price was affected then thousands of businesses re-contracting in October will have been detrimentally affected.”
Exclusive: Whistleblower claims £300bn wholesale gas market has been manipulated by big power companies
• The gas game: all our related content
The City watchdog, the Financial Services Authority, is investigating claims by a whistleblower that Britain’s £300bn wholesale gas market has been “regularly” manipulated by some of the big power companies, exploiting weaknesses that echo the recent Libor scandal.
Separately, the energy regulator Ofgem has been warned by a company responsible for setting so-called benchmark prices, ICIS Heren, that it had seen evidence of suspect trading on 28 September, a key date as it marks the end of the gas financial year and can have an important influence on future prices.
The whistleblower, who worked for ICIS Heren, raised the alarm after identifying what he believed to be attempts to distort the prices reported by the company. These benchmark prices are critically important because many wholesale gas contracts are based on them and small changes in the price can cost or save companies millions.
The revelations come at a highly charged time for Britain’s energy sector, with many of the big six suppliers under public fire for alleged profiteering on household energy bills and mis-selling on the doorstep.
The energy secretary, Ed Davey, said : “I am extremely concerned about these allegations and will be keeping in close touch with the regulators while they get to the bottom of this.”
In a statement, the FSA said: “We can confirm that we have received information in relation to the physical gas market. We take market misconduct seriously and will be analysing the material.”
Ofgem said it had been given material “relating to trading in the gas market and is looking into the issue”. The energy regulator said it had limited powers in this area but would “consider carefully any evidence of market abuse brought to our attention as well as scope for action under all our other powers”.
The City and energy regulators are keenly aware of the growing political concern that high energy prices, which are linked to wholesale values, can increase fuel poverty and undermine economic growth. , he Green MP Caroline Lucas said: “If these revelations stand up to analysis by the FSA and Ofgem, then this is corruption on a massive scale and a shameful case of corporates coming together to exploit a public utility.”
The market abuse concerns were initially raised by Seth Freedman, a former City trader who worked as a price reporter at ICIS Heren for nine months. He told the Guardian he believed problems he spotted in a frenzied half-hour of trading on 28 September were more widespread.
“Traders have made clear to me that manipulation of gas prices is taking place on a regular basis.
“They name big companies among those they accuse of trying to rig prices and reap profits. Market participants claim the fixing of prices is an open secret,” he said.
He also claimed that:
• The big six companies are among those whose names are quoted by traders as being involved in attempts to raise or depress wholesale gas prices.
• The key benchmark indices produced by at least one price reporting agency (PRA) and used increasingly in massive UK supply contracts are unreliable, and undermined by poorly-trained staff and over-cosy relationships between traders and price reporters.
• Traders regularly put price reporters under pressure to change prices they disagree with.
• Price reporters struggle to set accurate benchmarks because they lack detailed information about trading in the opaque so-called “over-the-counter” market and are dependent on what traders tell them about market activity.
The disturbing issues raised by the traders he spoke to daily in his job at ICIS led Freedman to tape conversations about the 28 September price gyrations, which he has handed over to the FSA.
In one, a trader from one power firm says: “There’s a feeling among some people that somebody’s taking the piss a bit on the day-ahead index. Between us I think [Company X] got in a bit of trouble for that about six months ago.” It has not been possible to establish if any company was censured.
Another trader told Freedman, who has previously been a freelance contributor to the Guardian, in an instant messaging exchange: “There are a few shops that continually try to distort closes from what I see … some of the range of quotes I hear sometimes are criminal.”
When Freedman flagged up a series of suspiciously low trades that he believed were designed to depress ICIS’s “day-ahead” price on 28 September, a senior ICIS manager acknowledged they appeared to be an attempt to manipulate the price but said “actually we did a bad job investigating it”.
ICIS Heren did notify Ofgem about the suspicious trades. But, in another recorded conversation, the manager said there was “no official thing to do” when PRAs saw what they believed to be evidence of price manipulation.
The whistleblower’s information, handed over to the FSA, shows that on 28 September the price at which so-called day-ahead gas contracts were being bought and sold dropped sharply at precisely the time – 4.30pm – at which ICIS Heren attempts to take the pulse of the market.
One explanation for this could be that traders were deliberately dealing below the prevailing price in order to drag the benchmark down, perhaps because they stood to gain more from other contracts linked to this benchmark.
It is not possible for price reporters to establish who did the suspicious deals as they were conducted through a third-party brokerage firm.
In a statement, ICIS confirmed that it had detected some “unusual trading” activity on the British wholesale gas market on 28 September, which it reported to energy regulator Ofgem in October.
“The cause of the trading pattern, which involved a series of deals done below the prevailing market trend, has not yet been established. ICIS welcomes the seriousness with which the regulator has so far responded to this information and we have provided all the evidence at our disposal to help determine what happened.”
ICIS said it welcomed the additional powers that are to be assigned to national energy regulators as of next year under the EU’s regulation on energy market integrity and transparency (Remit), and the additional market oversight provided by the pan-European energy regulator ACER.
A spokesman for the Department of Energy and Climate Change said: “The government takes alleged abuse in our markets very seriously. It’s important not to pre-empt the work that the enforcement agencies already have under way to assess the detail of the allegations made. The FSA and Ofgem have a range of powers available to them and have our full support in applying the law and ensuring that any wrongdoers are held to account.”
It is understood Davey, will make a statement to the Commons on Tuesday about the price manipulation allegations.
In Europe, energy firms have been trying to fight off attempts by Brussels to introduce tighter regulation of the gas market which would ensure there can be no repeat of the Libor scandal – where banks manipulated the rates at which they borrowed money.
Arlene McCarthy, the North West England MEP, said she feared Freedman had unearthed another case of apparent market abuse and manipulation in gas prices. “For some time I have feared there is an extensive cartel culture of market-rigging and price-fixing in the commodities markets.
“Companies guilty of abuse must face the full force of penalties and sanctions and jail for criminal behaviour,” she said.
“The FSA must take action but as the UK gas is the benchmark for gas traded at EU level I will be asking European commissioners [Joaquín] Almunia and [Michel] Barnier to take urgent action on cartels and price-fixing and introduce tough rules on the setting of benchmarks and indices in the commodities markets.”
Chris Cook, a former compliance officer at the International Petroleum Exchange and now a senior research fellow at University College, London, said the problems highlighted by Freedman in the gas market echoed those in the oil sector.
“There is a structural issue here that over-the-counter markets with low liquidity can be manipulated by traders putting through visible trades at a duff price. We need to make sure the market is more transparent through a transaction registry,” Cook said.
The way energy prices, which are used for key benchmarks in much larger multibillion-pound supply contracts, are formulated has been under scrutiny from the G20 group of leading global economies.
The PRAs’ (PRAs) work in the oil markets was scrutinised by an organisation working for the G20 nations amid widespread concern about oil trader speculation. There is no suggestion that ICIS or any other PRA has been involved in speculation themselves, but there are fears their reporting could be distorted by misleading information provided by energy traders, or by anomalously priced trades designed to move the benchmark price.
A report published last month by the board of the International Organisation of Securities Commissions (IOSCO) talks about the “opacity and variations” in PRA assessment methodologies.
“The need for assessors to use judgment under methodologies creates an opportunity for the submitter of data deliberately to bias a PRA’s assessment in order to benefit the submitter’s derivatives position,” it says, adding: “For example, a trader seeking to manipulate a price might attempt to influence the personnel responsible for assessment.”
The French oil group Total said in a letter to the IOSCO: “Sometimes the criteria imposed by PRAs do not assure an accurate representation of the market and consequently deform the real price levels paid at every level of the price chain, including by the consumer.”
Meanwhile, energy companies have been working hard to fight off any new initiatives from Brussels about the way gas prices are set.
A European gas hub report just published by ICIS says: “The recent London interbank offered rate (Libor) scandal engulfing major financial institutions also prompted a European commission consultation in early September on the regulation of key indices, including those for coal, natural gas and electricity. However, strong industry resistance to many of the proposals has so far resulted in the watering down of many elements of the current regulatory proposals.”
In the past, because there were relatively few “spot” short-term contracts to give ideas about current prices, these British and other European longer-term import deals with the Norwegians or the Russians were tied to prevailing oil prices. But increasingly major long-term and high-volume contracts have been linked to spot prices set by ICIS and other agencies.
Although some deals with corporate customers are specifically linked to benchmark prices such as ICIS Heren’s, industry experts say it is difficult to assess what impact wholesale manipulation – if it were going on – would have on household bills.
EDF and SSE, two of the big six, contacted by the Guardian, denied that they would be involved in any attempt to manipulate prices or be involved in other bad practice. Two others, E.ON and RWE, have made similar statements in the past.
A spokesman for the French-based energy group said: “EDF Energy does not participate in loss-leading trading activity and considers it to be against existing market regulation. We make information likely to impact market price formation publicly available on our website in compliance with Remit.”
SSE said: “We are entirely confident that our energy portfolio management team operate in a fair and legitimate way.”
A spokesman for British Gas owner Centrica, said: “Our compliance procedures and trading principles are clear. They require us to comply with all EU and UK laws and we have done so.”
A spokesman for Scottish Power said: “Scottish Power has never engaged in trying to fix wholesale gas trading markets. Our trading division always acts with integrity and follows all rules in all of its engagements with the market.”
The political temperature over domestic energy bills is likely to hot up again when a British Gas price rise of 6% for gas and electricity comes into effect on Friday. The average household bill for a dual-fuel British Gas customer will go up from £1,260 to £1,336 a year, according to the energy account transfer service uSwitch.
Ann Robinson, director of consumer policy at uSwitch.com, said (Mon 12): “The timing could not be worse – as winter makes its presence known, the cost of heating our homes will be taking its toll on cash-strapped consumers. With bills reaching an all-time high, it’s no surprise that almost nine in 10 households will be rationing their energy usage this winter.”
McCarthy, the MEP, said any upheaval in the wholesale markets was dangerous because domestic supply companies cited the rise in wholesale prices as a reason for household prices to increase. “If in the end wholesale prices are being manipulated to increase the profits of the energy companies then consumers will end up the victim of this great gas ripoff. Families have seen gas and energy prices rise on average by between six and 9% this year, adding on average £200 to their bills.”
Freedman has worked as an FSA-approved trader in the City and contributed to the Guardian from Israel. He was not working for the Guardian while employed as a price reporter by ICIS Heren.
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EDF is fifth of the ‘big six’ providers to announce a price rise – the highest of all the firms so far
EDF Energy has announced price rises of almost 11% for its 3 million gas and electricity customers that will come into effect just before Christmas.
The 10.8% average rise, which will be introduced on 7 December, is the highest imposed by any energy company this year, and follows announcements from British Gas, npower, Scottish Power and SSE in the past few weeks. It also comes at the end of the Big Energy Saving Week, a national initiative designed to educate people about how to cut energy bills.
The company blamed the price rise on a combination of “significant extra costs in the use of gas and electricity networks, mandatory energy efficiency and social schemes, plus the rising price of wholesale energy.”
“We know customers will not welcome this news and do not want to see prices going up,” said Martin Lawrence, managing director of energy sourcing and customer supply. “Our new prices will, however, be cheaper on average than those of all the other major suppliers which have announced standard price rises so far this autumn.”
Of the “big six” firms, only E.ON has yet to increase prices, although it is widely expected to do so shortly. The company has promised a price freeze until 2013 so any changes wouldn’t happen until then.
Ann Robinson, director of consumer policy at uSwitch.com, said the price rise is “the final hammer blow” for energy customers this side of Christmas. “Consumers now face a winter of rationing their energy usage – many will be forced to turn their heating down or off for fear of the impact of these hikes,” she said.
Clare Francis, consumer finance expert at moneysupermarket.com, said: “Customers need to keep on their toes to try and beat rising bills. The longer, colder nights are drawing in, encouraging people to crank up the thermostat. Any customers languishing on their provider’s standard tariff should act now to ensure they switch on to the best deal.”
Downing Street described the latest price rises as “very disappointing”. A Number 10 spokeswoman said: “It is up to energy suppliers to explain their prices to their customers. While we can’t control world energy prices, we have been working very closely with the energy companies to make it easier for people to switch to find cheaper deals.
“We want to ensure customers get the lowest tariffs. That is why we are going to use the law to help people get the best deals.”
Citizen’s Advice issued research earlier this week that showed many people are living in colder homes than they would like: 62% don’t have the heating on as much as previously, and 18% are not using some rooms in their home in a bid to cut their bills. It is using Big Energy Saving Week to encourage people to switch provider.
Tomorrow, London pensioners will descend on the Westfield Stratford shopping centre in the east of the capital to protest against fuel poverty.
Elizabeth Ziga of Fuel Poverty Action, the group that has organised the protest, said: “‘People are fed up with our energy being produced to line the pockets of the ‘big six’ while we’re left to suffer mammoth fuel bills and escalating climate change. Saturday’s protest, led by pensioners, will be the first of many. Expect a winter of resistance.”
Protests as two energy suppliers announce price increases – of up to 9% – on same day
Millions of householders face record high heating bills this winter as two of Britain’s biggest energy suppliers announced price increases of up to 9% on the same day.
British Gas has announced a price rise of 6% for gas and electricity customers that will add £80 to the typical household’s annual bill, while npower has announced an 8.8% price increase for gas and 9.1% for electricity, adding £112 to bills.
The rises, which come into effect on 16 November for British Gas and 10 days later for npower customers, will make the latter the most expensive supplier in the country. Customers on its most expensive tariff face a typical annual bill of £1,356.
SSE has already announced price rises of 9%, which take effect on Monday, making it the second most expensive supplier, at £1,354 a year. British Gas is a close third with average bills rising to £1,336.
The move is a bitter blow for householders who suffered gas and electricity price rises in 2011 of 18% and 16% respectively from British Gas and 17% from npower. This was followed by a 5% drop in electricity tariffs by British Gas in January 2012 and a 3% cut in the same month from npower.
George Osborne told ITV: “We are doing everything we can to help people insulate their homes better. We’ve got government programmes which we urge people to take up to make sure that they can get their electricity bills cheaper but of course I’m concerned when I see electricity bills going up and partly that is because of things beyond our control – what’s happening in the world with oil prices and gas prices.”
Asked whether energy companies are profiting too much, the chancellor said: “Of course these companies need to generate money that they can invest in new power stations and new grids and the like but I’m also very clear that at a time like this we’ve got to help families.”
Citizens Advice chief executive Gillian Guy said: “Rises in fuel costs are eating away at people’s earnings, forcing them to make really difficult choices about whether to have a warm home, put food on the table, or fill up the car in order to get to work.”
A total of 8.5m households will be hit by the British Gas increase, though a further 1 million of its customers on fixed-price contracts will be unaffected. The 4,000 British Gas customers on its renewable energy tariff will face even bigger rises when their electricity bills rise by 11%. The company blamed the bigger rise on the higher cost of generating electricity from renewable sources. Three million npower customers will see their prices go up, while a further 500,000 on fixed tariffs will see no change.
British Gas blamed the price increase on rising wholesale prices as well as increasing costs related to social and environmental issues. “We simply cannot ignore the rising costs that are largely outside our control, but which make up most of the bill,” said the company’s managing director, Phil Bentley.
“Britain’s North Sea gas supplies are running out, and British Gas has to pay the going rate for gas in a competitive global marketplace. Furthermore, the investment needed to maintain and upgrade the national grid to deliver energy to our customers’ homes, and the costs of the government’s policies for a clean, energy efficient Britain, are all going up.”
Paul Massara, chief commercial officer at npower, blamed “external factors”. “We support moves to reduce CO2 emissions, but new government schemes will mean energy bills will rise,” he said.
Consumer groups were quick to express their concerns, not only at the size of the rises but at the similarity between the resulting prices. Joe Malinowski, energy analyst at TheEnergyShop.com, said he did not agree wholesale gas prices could be to blame. “Year on year these are down,” he said. “The price rise also makes British Gas’s prices almost identical to that of SSE, once SSE’s prices go up on Monday. So where is the competition in the market?”
Audrey Gallacher, director of energy at Consumer Focus, said: “Price hikes on the same day will just reinforce the views and prejudices of consumers – whether justified or not – about a lack of transparency and competitiveness in the market.
“People are not convinced they are getting a fair deal. Unless they can be reassured about the relationship between costs, prices and profits, consumer distrust will continue, companies won’t get their message across, and the success of the regulator will be questioned.”
It is widely anticipated the remaining “big six” suppliers will soon follow suit with similar price rises. E.ON has a price freeze in place until the end of the yearbut has refused to rule out an increase after that, but ScottishPower and EDF are expected to announce rises imminently.
Some householders could still save close to £300 by switching supplier and tariff, but many of the cheapest deals have recently been pulled. Three of the cheapest five tariffs now come from two of the country’s smallest suppliers, First Utility and Ovo Energy.