UK: Big six energy supplier SSE pledges price freeze
15:12 26 March 2014
PA Wire/Press Association Images
Big Six energy supplier SSE today pledged to freeze household gas and electricity prices until January 2016, immediately putting rivals under pressure to do the same.
The move, which comes amid intense political lobbying on energy companies over rising bills and soaring profits at a time when household wages are being squeezed, was hailed by Prime Minister David Cameron as “hugely welcome”.
The sector faces the outcome of a regulatory probe within days, which is widely expected to see it referred for a full-scale two-year competition investigation.
Six months ago, SSE criticised a pledge by Labour to force suppliers to freeze prices, saying it would lead to “unsustainable loss-making retail businesses”.
Labour’s policy was dismissed at the time by Mr Cameron as unworkable and “Marxist”, and Ed Miliband told the House of Commons today that SSE’s decision had “totally demolished” the Prime Minister’s arguments on prices.
“Week after week, he denounced Labour’s call for an energy price freeze to help families and businesses, but now apparently he supports a price freeze,” Mr Miliband told MPs. “Can he explain why a price freeze was wrong six months ago but it’s the right thing to do today?”
Mr Cameron said that SSE had made clear that a principal factor allowing it to freeze prices was the Government’s decision to roll back green levies on energy bills, which saved households an average £50 a year.
“It is hugely welcome in our country that energy companies are cutting and freezing their bills,” Mr Cameron said at the weekly session of Prime Minister’s Questions.
“What we have done is reduce the cost of energy charges so that companies are able to cut their bills... It is our policy that bills should be cut and bills are being cut under this Government.”
Mr Cameron said that since the rollback of green levies, British Gas and E.On had cut £50, Scottish Power £54 and EDF £65 from dual-fuel bills, while npower, Scottish Power and EDF had all announced that prices will not go up further in 2014.
Energy Secretary Ed Davey welcomed SSE’s apparent U-turn on the price freeze and sought to put pressure on the company’s rivals to do the same.
Mr Davey said: “SSE have shown today that the big energy firms are able to cut their costs and profits, and be confident about their ability to weather potential uncertainty in the wholesale markets, to give bill payers long-term price security.
“Customers of the others will be asking whether their suppliers will do the same. The Government encourages people to shop around for the best deal.”
SSE chief executive Alistair Phillips-Davies told Radio 4’s Today programme the freeze would knock £100 million off profits for 2015.
He said: “We felt we needed to make a bold statement. It’s all about making sure that we listen to customers, that we show that we are responsive to customers and so we have clearly said we will have to accept lower profits.”
Will Morris, managing director of the group’s retail arm, said the freeze would be unaffected by volatility in world wholesale energy prices, amid fears over the impact of Russia’s confrontation with the West over Ukraine.
He told Sky News: “Whatever President (Vladimir) Putin does, our prices will not rise.”
Mr Morris also said supply profit margins would fall from their usual level of around 5% to as low as 2.5%.
The price freeze announcement knocked 2% off the value of British Gas owner Centrica as it is likely to come under renewed pressure over bills.
But SSE shares were up amid its disclosure of wider plans for the group’s future, including a pledge on higher dividends.
Today’s announcement also revealed that the group is to axe 500 jobs in a voluntary redundancy programme as part of a cost-cutting drive to save £100 million a year.
In addition, plans to slim down the company will see it dispose of assets worth £1 billion while it is shelving the development of two onshore wind farms that it says are no longer financially viable.
Meanwhile, the FTSE 100 group is carrying out a “legal separation” of its wholesale arm - which includes energy production and storage - from its retail division selling energy to homes and businesses.
The move, which it says will be complete a year from now, appears to forestall potential regulatory action which it is speculated could result in action to split up large companies such as SSE that produce and supply energy.
“This legal separation will enhance the transparency of how SSE measures and reports the performance of these businesses,” the group said.
SSE, which supplies more than nine million customers in Great Britain and Ireland, said today’s freeze would see the longest unconditional price guarantee the domestic energy market has seen.
The group said that by January 2016 it will not have increased prices since November 2013, a period of almost 26 months.
SSE hiked tariffs by an inflation-busting 8.2% in November, and like other companies blamed the rise on higher costs of buying and distributing wholesale energy as well as Government levies on bills to pay for energy efficiency policies.
But after the coalition announced it was rolling back the levies, it said it would cut average dual fuel prices by 3.5% from March 24.
It has written to party leaders to demand further reform, “calling for energy taxes to be taken out of bills and paid for through general taxation instead”.
Mr Phillips-Davies said: “We’re doing our bit but we don’t want to stop at 2016. So today we’re making clear once again that we wish to work with people to find more ways of taking costs out of energy bills.”
Which? executive director Richard Lloyd said: “This is a bold move in an energy market badly in need of change and we welcome the certainty this announcement brings to hard-pressed SSE customers. Millions of households can be confident that their energy bills won’t be hit again by inflation-busting price rises in the months to come.”
SSE said financial results to the end of March, due to be published in May, were expected to be in line with previous guidance, with adjusted profits before tax set to rise by 9%.
However, operating profits from its retail arm are expected to be 25% lower, reflecting customers’ reduced energy consumption during a mild winter.
SSE also gave more details about a previous warning that it would need to cut back on capital expenditure amid uncertainty about future energy policy.
It said investment would be around £1.6 billion in 2014/15 but around £300 million lower in each of the three following years.
SSE, which also trades as Scottish Hydro, Southern Electric, Swalec and Atlantic, is one of the so-called Big Six energy companies that dominate UK supply, together with British Gas, E.ON, npower, EDF and Scottish Power.