British Gas shares fall as Ed Davey warns energy giants could be broken up

 
Warning: Energy Secretary Ed Davey says he is prepared to act against the major power suppliers over prices
10 February 2014

Shares in British Gas’s parent company fell this morning after a Cabinet minister opened the door to energy giants being broken up.

Energy Secretary Ed Davey wrote to regulator Ofgem inviting it to launch an inquiry into Britain’s gas market amid claims that household gas bills could be cut by nearly £40 a year.

He stressed the probe could cover if firms needed “breaking up” to get consumers the best deal. Mr Davey claimed profit margins on gas were in some cases more than five times higher than for supplying household electricity.

“It looks like there could be a problem in the domestic gas supply market,” he told BBC radio. “If profits on gas supply was brought in line with those made in electricity supply, that could mean a saving of nearly £40 on the average annual bill.”

Shares in Centrica, British Gas’s parent company, fell three per cent this morning and those in SSE by one per cent after the announcement.

In his letter to Ofgem chief executive Andrew Wright, he said gas made up two-thirds of the energy bills for most households. He singled out British Gas, the largest supplier, suggesting that there was evidence that it had tended “to charge one of the highest prices over the past three years, and has been on average the most profitable”.

He added: “Clearly you will wish to consider whether this is prima facie evidence of an issue in the market and so whether it merits a market investigation reference, with the whole gamut of potential remedies that could follow, including a break-up of any companies found to have monopoly power to the detriment of the consumer.”

Richard Lloyd, executive director of Which?, said: “This is a hugely significant intervention by the Secretary of State and implies Ed Davey agrees with Which? that the structure of the biggest energy companies is partly to blame for the price hikes...”

British Gas said it was complying with an ongoing independent market assessment being conducted by the Office of Fair Trading, Ofgem and the Competition & Markets Authority.

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