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British Utilities Under Fire For Not Sharing Savings With Consumers

Five of Britain’s “Big Six” energy utilities have so far shared some of their wholesale savings on gas with their retail customers, but the industry’s chief regulator says the companies’ profit margins were growing despite the discounts.

“I do believe it will show an increasing margin and that is clearly a cause for concern,” Dermot Nolan, chief executive of the Office of Gas and Electricity Markets (Ofgem), told Parliament’s Energy and Climate Change Committee on Jan. 27.

Nolan said a formal monthly report on the increased profit margins would be contained in a report to be released Jan. 29. He noted that previous reports had been attacked by the energy providers, but expressed confidence that the next report would be an accurate measure of the companies’ profitability. He said he couldn’t provide more detail before the report’s release.

Related: British Utilities Begin Passing Energy Savings On To Consumers

Britain’s “Big Six” include British Gas; EDF Energy, owned by Électricité de France; Npower and E.ON UK, both German-owned; Scottish Power, a Spanish-owned company, and Scotland’s SSE.

One effective date for a gas discount is Feb. 27, offered by British Gas. The utility said the price cut will save more than $55 on the average home gas bill. But critics say the timing of the discount is questionable because customers can’t benefit from it until after energy use is at its winter peak.

And the most recent discount of between 3.5 percent and 5 percent being offered is from SSE. That cut won’t be effective until the end of April.

Meanwhile, wholesale gas prices have dropped by more than one-fifth since early December as a result of the nearly 60 percent plunge in the price of oil since June. Energy wholesalers typically link the prices they charge for gas to what they can fetch for oil.

Related: UK Mismanagement Failed North Sea Oil Says Scottish Oil Minister

Nolan said his agency is working to find better deals for consumers and that, under current circumstances, “[w]e are telling people generally it is a good time to switch” their gas service away from variable rates to fixed monthly utility fees. He said Ofgem recently published research showing that retail customers can save up to $375 a year by opting for fixed fees.

At that time, Nolan said, “We are seeing companies compete for consumers interested in taking a fixed-price deal. However, we are not seeing rigorous competition between suppliers that benefits all consumers. Around 60 percent of customers are on variable tariffs, and [there is a] lack of competitive pressure on prices for these customers.”

Nolan added, “[T]here is the major question of whether and how wholesale cuts that have clearly occurred are being passed on. It is something we will continue to monitor and measure… One thing I want to do very, very clearly as a regulator is shine as much light into this area as possible, publish as much data, really put firms under the microscope in terms of saying, ‘What have you done, what are the correct [profit] margins that are in place?’ ”

By Andy Tully of Oilprice.com

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