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Britain hints at possible break-up of British Gas

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(Globalpost/GlobalPost)

Britain urged regulators Monday to launch a full-scale probe into profit margins in the domestic gas market, and hinted that Centrica unit British Gas could be broken up.

Energy Secretary Ed Davey, a Liberal Democrat member of Conservative Prime Minister David Cameron's coalition government, made the appeal in a letter to energy watchdog Ofgem's head Andrew Wright.

The letter marks the latest twist in a political row over Britain's high cost of living, ahead of a general election due in May 2015.

"Analysis of the profit margins of the energy companies shows that the average profit margin for gas is around three times that of electricity," Davey wrote.

"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.

"Does this indicate that British Gas has a strong monopoly position which enables it to generate high profit margins?"

He called on Ofgem to consider taking action against suppliers, "including a break-up of any companies found to have monopoly power to the detriment of the consumer."

At 41 percent, British Gas has the largest share of the country's domestic gas market, and generated a profit margin of 11.2 percent in 2012 on domestic supply, according to data cited alongside the letter.

Regulators Ofgem, the Competition and Markets Authority and the Office of Fair Trading are conducting an annual market assessment into the sector.

"I want them to think radically," Davey told BBC Radio on Monday.

"It is an independent process. They could decide to take no action or they could decide to go for a full-scale market investigation.

"There could be a number of remedies if they go down that route, including the breaking up of some of these companies if they have been shown to abuse their market power."

The figures also showed the average profit margin for gas supply across the so-called "Big Six" suppliers -- also comprising SSE, E.ON, EDF, npower and Scottish Power -- was 6.7 percent in 2012.

British Gas issued a statement on Monday to stress that it was complying with the assessment, adding that the data in Davey's letter "has already been fully disclosed and in the public domain for a number of weeks".

However, Monday's news sent shares in British Gas parent Centrica sliding 1.85 percent to 308.4 pence in late afternoon deals on London's rising FTSE 100 index.

Britain's opposition Labour party has already vowed to freeze electricity and gas prices, should it win the 2015 election.

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http://www.globalpost.com/dispatch/news/afp/140210/britain-hints-at-possible-break-british-gas