Ed Davey suggested British Gas had charged one of the highest prices to domestic customers in the last three years. Photograph: Getty Images.
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Six questions answered on Centrica's share price fall after suggestions British Gas could be broken-up

Why is Ed Davey investigating British Gas’s profit margins?

British Gas owner, Centrica, suffered a fall in share price today after the UK energy secretary investigated its profit margins and suggested the company may have to be broken up. We answer five questions on the potential break-up of British Gas.

By how much has Centrica’s share price fallen?

The share price fell by 3 per cent today after energy minister Ed Davey questioned the company’s dominance in the market. British Gas currently has 41 per cent of the domestic gas supply market in the UK, the largest share of any of the so-called "big six".

Why is Ed Davey investigating British Gas’s profit margins?

Davey said in a letter that profit margins made by the "big six" energy suppliers when supplying gas were actually higher than previously thought. In particular, he highlighted the high profit margin of British Gas and its large market share. He added that British Gas had charged one of the highest prices to domestic customers in the last three years.

He estimated that if gas margins were similar to electricity households would save on average up to £40 a year. Davey also provided information that showed Centrica saw profit margins of 11.2 per cent for its gas business in 2012. He suggested a market investigation.

Why has Davey said British Gas may have to be broken-up?

If an investigation found evidence of a monopoly this could result in the company being broken-up. As well as asking the competition authorities to investigate the profit margins as part of an ongoing review, he has written to energy regulator Ofgem and the Competition and Markets Authority asking them to consider all possible avenues "including a break-up of any companies found to have monopoly power to the detriment of the consumer".

What else has Davey said?

Mr Davey told the BBC: "This is a significant issue for consumers out there who are struggling with their energy bills."

In his letter he says: "Analysis of the profit margins of the energy companies shows that the average profit margin for gas is around three times that of electricity.

"There is also evidence that British Gas, the company with the largest share of the gas domestic supply market, has tended to charge one of the highest prices over the past three years, and has been on average the most profitable."

What has British Gas said about Davey’s comments?

In its statement, British Gas said: "We welcome this and have complied with all the requests for data which we have received.

"The data referred to in the Secretary of State's letter has already been fully disclosed and in the public domain for a number of weeks."

What have the independent experts said?

Some have queried why this publicly available information hasn’t been investigated by Ofgem already.

However, Richard Lloyd, the executive director of the consumer rights group Which?, told the BBC the intervention was hugely significant and suggested Davey agreed with Which? that the structure of the biggest energy companies is partly to blame for the price hikes.

"It will now put huge pressure on the regulators, in a matter of weeks, to announce that they're taking the first steps towards potentially breaking up the very biggest of the big energy companies," he added.

Heidi Vella is a features writer for Nridigital.com

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.