Boiling Point: Calls for inquiry into alleged 'profiteering' of energy giants

(Independent Graphics)

British Gas, the country's biggest energy supplier, announced a 500 per cent rise in profits today, outraging campaigners who claim householders are being ripped off.

The company made £571m in 2007 compared with £95m the previous year.

Most of the money was made between January and March, when the wholesale price of gas went into freefall as a result of unusually mild weather and a new gas pipeline from Norway.

During those three months, BG's bosses kept prices high, earning what one analyst has described as "absolutely extraordinary" profits.

Consumer groups demanded an official inquiry into whether the "Big Six" energy companies have been profiteering and plunging low earners into choosing whether they eat or heat their homes.

"It's quite sickening when companies make these huge profits while, at the same time, we are expecting 25,000 excess winter deaths as a result of people not being able to keep warm," said Lesley Davies, the chairman of the National Right to Fuel Campaign. "The Government must do more for these consumers.

"They prattle on about the winter fuel payments for pensioners but there are just as many single-parent families and others who cannot get the payment."

Energywatch, the independent gas and electricity watchdog, called for the Competition Commission to investigate whether the £24bn-a-year domestic power business was working properly.

Its campaigns manager Adam Scorer said: "Consumers will fee justified in claiming that they are being taken for a very rough ride by the energy companies."

Five of the Big Six – British Gas, E.on, npower, EDF, and Scottish Power – have put up their prices by about 15 per cent to within £100 of each other in the first two months of this year.

Only Scottish & Southern is cheaper but it is expected to announce an increase after its price promise ends on 30 March.

Political pressure on the companies is mounting, with an investigation into the competitive structure of the market by the Select Committee for Business, Enterprise and Regulatory Reform, and 12 separate Commons' Early Day Motions.

Questions are being asked because costs have increased at a much lower rate than customer bills, leading to claims that the companies are profiteering. According to a report by the independent analyst Cornwall Energy Associates for the Right to Fuel Campaign, about £2.3bn of the £8bn increase in prices cannot be accounted for and is likely to be profit.

The companies say they have to invest heavily to improve their environmental performance and develop renewable power.

British Gas, which last month increased prices by 15 per cent, said it had to wait to find out whether wholesale prices fell before lowering prices in March and April. But its annual report will indicate it has been able to make bumper profits despite claiming the industry is extremely competitive. Since the energy market was liberalised, the former state monopoly gas supplier, which has 46 per cent of gas customers and 21 per cent of electricity customers, has been rated worst for customer service.

It receives 45 complaints per 100,000 customers, compared with 10 for Scottish and Southern and about 20 for EDF and E.on.

In its interim results for the first six months of 2007, British Gas made £533m. Profitability then slipped during the second half but the scale of the profits made while wholesale prices dropped means the annual result will be about 500 per cent higher than the £95m made in 2006.

Joe Malinowski, a former energy trader who now runs the price comparison site theenergyshop.com, said: "The first half-year profit was absolutely extraordinary. You don't normally expect a company to make that type of money. The margin was 15 per cent on what is essentially a trading business, buying and selling energy.

"The energy price kept falling. The difference between retail and wholesale got bigger and bigger. Before they cut prices the margin was massive – the money was just flowing through the door."

About four million people are officially in fuel poverty, meaning they have to spend at least 10 per cent of their income on fuel bills. For many others, the reality of rising fuel bills is deeply unwelcome amid strong rises in mortgage payments, council tax and water bills and a background of a weakening economy.

Peter Lehmann, of the group Fuel Poverty Advisory Group, urged the regulator Ofgem to investigate the market and to close the gap between the price paid by predominantly poorer pre-payment customers and those paying by direct debit.

The GMB union complained that as well as "fleecing its customers and making record profits" British Gas was scrapping its final-salary pension scheme. "It is about time that a full inquiry was conducted into the operation of the energy market," said Gary Smith, GMB's national secretary.

British Gas argued that it could not have predicted the steep falls in wholesale prices at the beginning of 2007. "Sharp falls in the price of gas in winter 2006 led to unexpected profits in British Gas early in 2007, but rising costs later in the year also mean that analysts expect margins in the second half to be very thin," a spokesman for the company said.