Business

More energy price rises expected after SSE increase

Media playback is unsupported on your device
Media caption"We make about 5% margin... that's not the reason why prices are going up" - SSE Director of Customer Services Tony Keeling

Consumer groups are predicting that the UK's other major energy suppliers will raise prices after SSE announced an 8.2% increase in domestic bills.

SSE said its average annual dual fuel energy bill would rise by £106 to £1,380 on 15 November.

One industry expert described the move as "the final nail in the coffin for affordable energy", but SSE said that many costs were beyond its control.

The decision prompted fevered political debate over who to blame for the rise.

Citizens Advice is expecting an "avalanche" of increases but has called on the other energy firms to freeze prices.

"This price rise will be a blow for stretched budgets," said the charity's chief executive Gillian Guy.

"I hope other energy firms show an understanding of their customers' financial situation by not raising their prices this winter.

"Many households are facing a daily battle try to make their frozen incomes cover mounting energy, food and travel costs. Further increases will push people into poverty."

Freeze debate

SSE said that 8.2% was an average rise. Customers in the North of England and central Scotland would see the smallest increase, of 7%, in their dual fuel price. Customers in the South East of England would see the biggest, up 9.7%.

It added that the rise reflected higher costs of buying wholesale energy and paying to deliver it to customers' homes, plus government levies.

The move has amplified political debate about the issue of energy bills.

Labour leader Ed Miliband, who pledged a price freeze for 20 months if his party wins the next election, described SSE's price rise as a "scandal". He accused the government of "letting energy companies get away with this".

But Prime Minister David Cameron branded Mr Miliband's price freeze plan as a "con", saying that he did not have control over the worldwide price of gas.

Customer's 'anger'

SSE's price rises will affect about 4.4 million domestic electricity customers and 2.9 million domestic gas customers.

One of those customers is Gary Waywell, from Somerset, who has been a SSE customer for eight years.

He said he was surprised by the size of the price rise and angry at the timing just before winter.

"I can hardly go to my boss and say, 'would you mind giving me an extra £16 a week for the winter. I don't think he is going to smile at that," he said.

SSE's Will Morris said he understood customers' frustration.

"We're sorry we have to do this," he said.

"We've done as much as we could to keep prices down, but the reality is that buying wholesale energy in global markets, delivering it to customers' homes, and government-imposed levies collected through bills - endorsed by all the major parties - all cost more than they did last year."

SSE, made up of Southern Electric, Swalec and Scottish Hydro, said that for a typical dual-fuel customer, wholesale energy prices had gone up 4%, paying to use delivery networks was 10% more expensive, and government levies were 13% higher.

Up to 11% of a customer's bill goes on government programmes to save energy, reduce emissions and tackle climate change, according to regulator Ofgem. SSE said it wanted this to be included in general taxation, rather than added to bills.

However, Energy Secretary Ed Davey said: "Half of an average energy bill is made up of the wholesale cost of energy. This far outweighs the proportion of a bill that goes to help vulnerable households with their bills and to cut energy waste."

Profits

SSE's announcement comes about a year after the last set of gas and electricity price rises.

Between August and December 2012, the "big six" energy companies outlined price rises of between 6% and 10.8%.

Ann Robinson, from price comparison website Uswitch, which could benefit from consumers swapping suppliers, said: "This is a crippling blow for consumers, who are still reeling from last winter's price hike. Adding to an already sky-high energy bill will leave consumers buckling under the pressure. It's the final nail in the coffin for affordable energy.

"Of course the danger now is that the other big six suppliers will follow suit. This raises the spectre of yet more households forced to cut back on their heating."

The latest calculations from the regulator found that the average profit margin made by an energy supplier on an average £1,315 bill is £65.

SSE, formerly Scottish and Southern Energy, said it expected its annual profit margin to average about 5% over a three-to-five-year period, which it believed was "a fair amount".

It said its profit margin was 4.2% in the 2012-13 financial year and was expected to fall short of the 5% target again this year.

"We know we will come in for a great deal of criticism for this decision and politicians will no doubt be lining up to condemn us," said SSE's Mr Morris.

"But over many years, policymakers themselves have failed to highlight adequately the cost to consumers of the policies they have pursued in government.

"They can't expect to have power stations replaced with new technologies, the network to be upgraded and nationwide energy efficiency schemes all to be funded for free.

"And as an energy provider, we are in the unenviable position of having to pass this cost on to consumers through energy bills."

The BBC understands that the government is prepared to look at easing green taxes on smaller energy companies. These costs include paying for measures to save energy, reduce emissions and tackle climate change, and also include the cost of social programmes to help vulnerable customers.

At present, companies with 250,000 customers are liable to pay the green levy.

This threshold could be changed in order to encourage smaller energy companies to enter the market and challenge the big six. Only three smaller energy firms are operating in the UK at the moment.

Here is a selection of your views on the SSE announcement:

Martin O'Brien from Glasgow: Thanks SSE. It turns out I can switch and save an estimated £174 per year (based on pre-increase cost), plus I'll get £100 cash back after three months for switching, and I've been paying too much on direct debit so they owe me £490. That's the most productive 10 minutes I've spent this year.

John Hewitt from Nottingham: I have never been one to change suppliers but I will now. I have been a very happy SSE customer for more than 10 years and will always remember it was SSE that made it possible to get cheap electricity for a while. Yes, other suppliers will follow and raise their prices too, but initially it will be cheaper to move.

Gordon Porter from Oban in Scotland: I'm not totally surprised and all other suppliers will follow suit. Gas and electricity should be run by a very light touch government for the benefit of all users and investors. Government should also have a coherent energy policy and if they require additional generating capacity should help to pay for any additions.

Stephen Mcnulty from Leeds: There have been rumours around of this price rise for months, anyone that didn't fix is stupid.

Brian Pritchard from Edenfield, Lancashire: I suppose all the companies will increase prices now in a similar way, so what is the point of scrapping around to save perhaps a few pence if you are lucky? It's extremely disappointing especially when the government is following the austerity path that we have seen for the last few years.

Paul Sutheran from Dudley, West Midlands: This is utterly disgraceful. Our income is falling year on year, yet they raise prices approximately three times the rate of inflation. The transparency we were promised has not materialised and the costs/methods of collecting the money from the customer are impossible to fathom. Energy is a national interest at every level and should not have been put into the hands of people whose motivation is profit.

Chris Jenkins from Wallasey, Merseyside: Part of my job is to help people with utilities issues in commercial and residential premises and I can tell you from first hand experience that utilities companies act disgracefully.

Related Internet links

The BBC is not responsible for the content of external Internet sites