Suppliers 'prioritized over energy bill payers'

A common ownership think tank in the United Kingdom has called for government intervention in the field of sharply increasing energy prices, saying that customers are being treated as less important than energy supply companies, and left to pick up the tab.

Changes to the price capping system mean that in April, the average UK household energy bill will rise by around 54 percent, with most billpayers now facing annual bills of nearly 2,000 pounds ($2,605), and with forecasts that the figure could rise by a further 50 percent later in the year.

Although much of this is down to fluctuating global energy prices, a report by the Common Wealth think tank, which focuses on democratic ownership of key parts of the economy, says that private investors are reaping rich rewards, and being prioritized above billpayers.

The energy price cap saw many smaller power suppliers forced out of business last year, pushing millions of customers into the arms of six big energy distribution networks.

Figures from energy regulator Ofgem show that last year, distribution costs accounted for around one-fifth of the average household energy bill, but when serious events like the supply disruption caused by Storm Arwen last November occur, many customers were left without power, and suffered poor service afterwards.

This, said Common Wealth report writers Joseph Baines and Sandy Brian Hager, from King's College London and City, University of London, demonstrated that "the financial returns of these companies are being prioritized over the financial security of British households".

Baines added that "huge profit margins are usually seen as a reward for extraordinary performance, and dividends as a return for equity investors bearing risk, but neither the performance levels nor the risk exposures of these natural monopolies are that high".

In addition, industry research provider IbisWorld reports that energy supply infrastructure companies have margins of up to 42.5 percent, with gas distributors not far behind. These are way ahead of sectors such as private equity at 32.5 percent and commercial real estate, on 33.4 percent.

John Griffin, analyst at Ibis-World, said that although the operating margins highlighted by the Common Wealth report were worthy of discussion, the energy sector's high level of regulation meant like-for-like comparisons with other, entirely free market, industries are not accurate.

Ofgem has said it planned to cut shareholder returns in its next sector reviews.

"Ofgem's network regulation has delivered significant benefits to consumers," it said in a statement. "We are reducing the amount paid to shareholders so that they are closer to current market levels."