SCOTTISH Power chief corporate officer Keith Anderson has lambasted plans to cap energy prices which he claimed could stifle competition as the company recorded a fall in the profit it made from selling gas and electricity to consumers.
The Glasgow-based giant said the profits for its retail arm fell £81 million in the first quarter, to £58m from, £139m in the same period last year partly due to relatively amid mild weather and increased non energy expenses. It cited the cost of compulsory environmental schemes and the rollout of smart meters.
Mr Anderson said margins also came under pressure in the first quarter amid strong competition between suppliers and rubbished suggestions the market is failing to deliver for consumers.
“Margins across the industry are tight because competition has been increasing,” said Mr Anderson who noted high numbers of people have been switching between suppliers.
Scottish Power customer numbers increased to 5.5m in the quarter from around 5.4m in the same period last year.
Mr Anderson joined industry criticism of proposals for a price cap. These seem increasingly likely to be implemented following claims the big six players including Spanish-owned Scottish Power have used their dominance of the market to exploit consumers.
On Sunday, UK work and pensions secretary Damian Green said a price cap would be included in the Conservative party’s manifesto for General Election on 8 June.
He told ITV’s Peston on Sunday: “Some people feel the energy companies have taken advantage of them”.
The cap would be expected to deliver savings of up to £100 a year for the 20 million households in the UK that are on standard variable tariffs rather than fixed price deals.
Mr Green’s comment suggests Conservatives are keen to respond to the wave of anger which has been triggered by the decisions of five of the big six, including Scottish Power, to increase prices this year.
British Gas has held prices until August.
Noting that more than 50 firms are chasing consumers’ business, Mr Anderson said: “Competition and pricing has been very aggressive.”
He said a potential price cap could harm competition in two main ways.
The act of putting an upper limit on prices could leave people who are not on fixed tariffs feeling that they have been offered some protection and so don’t need to shop around for a better deal.
“Having a blunt cap would make it more difficult for new entrants to come in and undercut firms and offer products with a big enough price differential,” added Mr Anderson.
He reckons the key to ensuring that more energy users get the deals that are best for them lies in getting people off standard variable tariffs and requiring them to engage with the market. The best way to achieve this would be to ban SVTs.
Mr Anderson said: “The government could impose a target that two out of three customers should be on a deal by the end of 2018, and all customers on a deal by the end of 2019 with SVT abolished once and for all.”
The percentage of Scottish Power customers on SVTs has fallen from 50 per cent in the first quarter last year to 44 per cent. The company said this is the best of the major suppliers.
The generation and supply businesses posed most challenges for Scottish Power in the first quarter.
Relatively mild weather had an impact but Mr Anderson said competitive factors and increases in non energy costs were more significant.
The generation business lost £11m before interest, tax, depreciation and amortisation after making £34m last time. The profit margins on gas-fired power generation are narrow. The closure of the Longannet power station in Fife last year impacted on first quarter earnings.
Renewables profits increased to £90m from £84m, helped by more favourable wind conditions.
The fall in networks profts to £210m from £223m was in line with expectations, and reflected the phasing of investments
Mr Anderson has underlined Scottish Power’s enthusiasm for the renewables market in the UK in which it is investing heaviliy.
The company invested £364m in the first quarter, primarily in renewable energy and in distribution and transmission networks. It accounted for nearly 40 per cent of the parent Iberdrola group’s total investment.
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