* Big six suppliers' pre-tax profit margins double in past
* Wholesale prices have dropped due to mild winter, healthy
* Energy price cuts could be put off due to Labour's freeze
* Smaller, more flexible suppliers reacting, winning new
(Adds regulator's call for explanation from suppliers, SSE
By Michael Szabo and Karolin Schaps
LONDON, June 10 Britain's big energy suppliers
are coming under mounting pressure from consumer groups and
politicians to cut household power and gas bills after a sharp
drop in wholesale costs boosted the firms' profit margins.
The country's "big six" energy providers, which supply 96
percent of UK households, also faced calls from industry
regulator Ofgem on Tuesday to explain why consumer energy prices
had not been cut to reflect the falling wholesale market.
Around half of the average British household energy bill is
made up of underlying market prices for electricity and gas,
while the rest is composed of, among other things, costs for
energy transport, expenses to support vulnerable customers and
support for renewable energy production.
"If wholesale prices go down by 10 percent, then our bills
should go down by 5 percent," said Ann Robinson, director of
consumer policy at price comparison website uSwitch.
"It's time for the energy companies to seriously start
thinking about reducing our bills."
Market prices for winter 2014 electricity and gas, when
demand is typically highest, have dropped by 13 percent and 17
percent respectively since the end of 2013, due to healthy gas
imports and unseasonably warm weather over the past six months.
As a result, Ofgem estimates that the big six are poised to
double their pre-tax profit margin over the next 12 months to
above 7 percent from 3.4 percent a year ago.
Data published by Ofgem last week showed so-called "dual
fuel" suppliers are poised to make an average profit of 96
pounds ($160) per home over the next year, compared with an
estimated 44 pounds over the past 12 months.
Ofgem estimates a typical home will spend 1,346 pounds on
power and gas over the next 12 months from May - a 3.1 percent
year-on-year rise - despite lower wholesale prices and a 15
percent drop in "environmental and social" costs since January.
"Energy prices and profits do not add up for consumers.
Companies hike prices when costs rise, so consumers expect them
to come down when wholesale costs fall sufficiently," said
Gillian Guy, head of consumer group and charity Citizens Advice.
In March, Ofgem called on Britain's Competition and Markets
Authority to investigate the industry after finding competition
in the market was not working as well as it might, a probe that
could lead to a break-up of the big six.
None of Britain's big six suppliers - SSE, EDF
Energy, Scottish Power, E.ON, RWE
npower and Centrica's British Gas - has passed
on any recent savings from lower wholesale prices to customers.
In response to questions, the firms declined to confirm
whether they would cut tariffs or why they had not already,
saying only that they were constantly monitoring the market.
SSE said it had in March frozen its consumer electricity and
gas prices until at least January 2016.
"Committing not to increase prices for such a long period of
time requires a long-term view on costs. However, we keep a
close eye on all the costs that go into supplying energy ... and
if we can lower prices, we will," an SSE spokesman said.
Meanwhile, small energy suppliers, which typically have more
flexible pricing due to lower running costs, have seized on the
opportunity and cut bills to reflect the lower wholesale prices.
Last month, a record 50 percent of customers who chose to
part ways with a major supplier signed up with a smaller one,
data from energy sector trade group EnergyUK showed.
"We believe that it's only right that these savings are
passed onto customers to help lower their energy bills," said
small supplier First Utility's Chief Customer Officer Ed Kamm.
But energy experts argue that wholesale prices have to
remain low for an extended period of time to reflect in the big
suppliers' pricing methods, which are more long-term focused.
"Companies will wait until autumn to assess the situation:
what is the price in the portfolio of client contracts, what
have they hedged at what price and where are market prices?"
said Roland Vetter, managing director at investment advisory
firm CF Partners.
Others predict suppliers, fearing market intervention if the
opposition Labour Party wins next year's election, will put off
cutting prices for as long as possible.
Tapping voter discontent ahead of next May's general
election, Labour leader Ed Miliband has pledged to freeze
household energy bills for 20 months if he is elected.
"The big six are worried about cutting prices now and then
having to increase them later to protect themselves should they
be faced with the Miliband freeze," said uSwitch's Robinson.
Caroline Flint, Labour's shadow energy minister, said on
Tuesday that if elected her party would give powers to Ofgem to
force suppliers to cut prices when wholesale costs fall.
"In a properly competitive market, there is no reason why
cost reductions should not be passed on as quickly as cost
increases. If there is evidence that this is not happening, that
clearly suggests that competition is not properly functioning
and that some kind of regulatory intervention is needed," she
told an industry conference in London.
Britain's Energy Secretary Edward Davey, speaking at the
same event, added: "companies who aren't ensuring their
consumers are getting a good deal may want to be careful ahead
of the market investigation".
($1 = 0.5956 British pound)
(Editing by Susan Thomas and Dale Hudson)