UK Energy Secretary urges regulators to look at British Gas margins-FT

Sun Feb 9, 2014 8:43pm EST

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Feb 10 (Reuters) - Britain's Energy Secretary Ed Davey has written to regulators saying profit margins of big energy companies' gas supply units are too high, and suggesting dominant player British Gas may have to be broken up, the Financial Times reported late Sunday.

In a letter to energy regulator Ofgem and the Competition & Markets Authority (CMA), Davey said Centrica-owned British Gas charged the highest prices in the domestic energy market and had been the most profitable, the FT said. ()

Davey's letter said Ofgem should decide whether the issue merited a market investigation on the matter, the FT reported, and offered possible solutions "including a break-up of any companies found to have monopoly power to the detriment of the consumer".

The news comes amid an independent competition review into Britain's energy sector launched in October by Britain's Office of Fair Trading, Ofgem and the CMA, which are looking into prices, profits and barriers to entry.

The FT, citing a source, said, Davey wanted the regulators to consider the evidence as part of its competition assessment. The source added that the energy secretary was concerned that British Gas and SSE in particular seemed to be making double digit margins on gas supply.

Soaring energy costs have become a big political issue in Britain since Labour leader Ed Miliband said in September he would freeze consumer bills for 20 months if he wins power.

The letter said the debate on energy prices had so far centred mainly on the electricity market, but that an analysis of energy companies' profit margins showed that the average margin for gas is about three times that of electricity, the FT reported.

"For some companies the profit margin is actually more than five times the average profit being made on supplying household electricity."

The paper said tables accompanying the energy secretary's letter showed that Centrica had reported profit margins of 11.2 percent in 2012 and had a 41 per cent share of the gas market.

Neither the Department of Energy and Climate Change nor British Gas were available for comment outside of regular business hours.

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