Energy Prices and Profits

David Mowat Excerpts

Wednesday 4th September 2013 Commons Chamber

[Mr Lilley]

That is the average of both generating profits and distributions profits. It is in table 6 of the report, which I am sure the right hon. Lady has read assiduously. She can check it if she wishes.

The right hon. Lady refused to answer a question about what a correct level of profit would be, but I cannot believe that she thinks profits are more than twice as high as they need to be. Even if we were to halve the profit level from 7.6% to 3.8%, the effect on prices would be very small compared with the huge increase we have seen. As we all know, the increase is largely the result of the increase in fuel prices, which is outside the control of Governments.

The suggestion that all energy companies have seen massive rises in profits is also dispelled by table 4, on page 27 of the report. Indeed, the Committee referred to the figure given in the Labour party’s motion of an increase in profits of £3 billion, which I think comes from Consumer Focus. The report states:

“Table 4, however, doesn’t appear to support this.”

Table 4 shows what has happened to companies’ profit margins from 2007 to 2011. For EDF, the average profit margin was 15.7% and went down to 8.5%. For SSE, it went from 4.2% to just 0.8%. For British Gas Centrica, it has gone down from 7.3% to 5.6%. For Scottish Power, it has come down from 11% to 4.4%. For E.ON, it has come down from 6.8% to minus 2.2%. For npower, it has come down from 12.2% to minus 5.5%. Therefore, the idea that there is huge scope for us to bring down excess profits, and thereby prices, through regulation or improved competition is sadly not correct, and it is dishonest to pretend that it is.

[David Mowat (Warrington South) (Con)]

I think we are using the term “profit” quite loosely, particularly the Opposition. What matters in judging the profitability or effectiveness of these companies is return on capital employed. That is how they measure themselves for the investments they make and the returns they get. I do not believe there is any evidence that the return on capital employed has increased in the last five or six years. If it had, those on the Opposition Front Bench would put that to the House.

[Mr Lilley]

My hon. Friend, as always, is absolutely correct. People would do well to note what he has said.

The most important issue to our constituents is the cost of living, and within the cost of living it is energy prices. Energy prices have largely been driven up by factors outside our control. The one factor within our control is the cost of renewables. We are hypocritical if we shed salt tears for our constituents while we, through the only area where we have discretion, are driving those costs up higher and are set to do so much further still in future.

[Albert Owen (Ynys Môn) (Lab)]

It is a pleasure to follow the right hon. Member for Hitchin and Harpenden (Mr Lilley), my colleague on the Select Committee on Energy and Climate Change with whom I have many discussions. I do not agree with him on many issues, but we have great discussions. His speech today was not an attack on our motion—I did not identify anything in the motion that he was referring to—but a critique of the Government, as well as previous Governments. I stand by social tariffs. It is right to help the poorest in our society, who are suffering. That is important. The Secretary of State was right in his intervention on the right hon. Gentleman to point out that he was not talking about just renewables; rather he was talking about many of the social tariffs that successive Governments have supported and that I think we should support into the future.

The right hon. Gentleman was right to point out that energy prices remain a big issue for all our constituents; they have risen by some 20% in real terms since 2007, while average bills have risen by a staggering £300 since 2010, as the motion says. The motion rightly refers to the Energy and Climate Change Committee report on prices, profits and poverty. The inquiry discovered the complexities of the current, vertically integrated system and found it difficult to establish the profits and losses on the companies’ balance sheets. It is not that the companies do not have small or large margins—the right hon. Gentleman referred to that—but that we do not have clarity. We cannot really see what profits are made in which parts of their businesses. That is why the report called for a simpler methodology agreed between the regulator and the energy companies, so that we can identify clearly what profits and losses are made by the companies.

[David Mowat]

The hon. Gentleman is right to ask for more transparency in the way that we judge this issue. One way of judging whether any market abuse is taking place is to look at the end price. I have a list from the EU Portal—this is from page 2 of 8—of gas prices in 27 European countries, which shows that the UK is the 26th most expensive. That does not imply that there is abusive behaviour here, or if there is, there is a lot more in other places.

[Albert Owen]

I am grateful to the hon. Gentleman; I am sticking to the report and the evidence base that we were given.

Our report identified—this is important—poor communications between the energy companies and the public. It is fair to say that some companies are now getting it, because of strong lobbying from consumer groups and the work done by the Select Committee in identifying the complexity of tariffs and how many there are.