SSE Chief Executive Alistair Phillips-Davies recently took part in an industry survey on the key issues of the day. Here are the questions and his answers:
Why did your company increase tariffs for domestic customers?
When we announced back in October that unfortunately we had to increase our tariffs we explained that it was for three reasons - the cost of buying energy in global markets had gone up, the cost of using the electricity and gas networks had gone up and government levies to pay for environmental and social policies had gone up. That left us with no choice but to increase our prices. We argued at the time that the Government should take these levies off bills so that we could reduce customers' costs and I'm pleased that it has taken action. The announcement of changes to the Energy Company Obligation schemes, a reduction in network costs and a change to how the Warm Home Discount is paid for mean that we have been able to announce a £50 reduction in the average bill. When we put prices up we said that if our costs came down, we would pass that on to customers. The Government has reduced some of our costs and we have delivered on our promise.
What is your assessment of the impact of increased domestic fuel tariffs on low income households?
I appreciate that family budgets are under pressure following increases to the cost of living, including transport, food and energy. That is a worry for a lot of people and I fully understand that. We held off with our price rise for as long as we possibly could because we understand the impact on our customers and when we did announce an increase we kept it as low as we could. We raised prices by just enough to cover our increased costs, and we do not plan to make any more profit.
I agree that it is low income households that are hit hardest, that's why we've led a campaign to get government schemes moved off bills and into taxation. Not only would this reduce bills, it would also move the burden of paying for these social and environmental schemes away from those who can least afford it to those who can afford to pay a little more through taxation. Finally, if there is anyone who is struggling we can offer help and they should contact us on 0800 980 8754.
What is being done to mitigate the impact of increased domestic fuel tariffs on low income households?
One important point that often doesn't come across in the discussion around energy prices is that rising prices do not have to mean rising bills. Energy efficiency really can make a difference to energy usage and therefore bills. In fact we have already seen the benefits of greater energy efficiency in homes over the past few years - if energy usage had stayed at 2005 levels, the average bill would be around £400 more than it is today. But there is a lot more that can be done to improve energy efficiency and help keep bills down. My advice to all customers worried about their bill is to contact us and let's see what we can do to help. Our advisers provide free energy efficiency advice and we expect to fund more than 125,000 energy efficiency measures in homes throughout Britain in the next year under the ECO scheme.
As well as energy efficiency schemes we will also spend more than £50m to help over 300,000 vulnerable customers through the Warm Home Discount, a rebate of £135 off bills. We also have a free Careline priority service, dedicated to helping customers who are elderly, disabled or have special medical needs and we provide tailored and flexible payment arrangements to help customers pay for the electricity and gas that they use. Most importantly, we never disconnect any customer during the winter months.
I sometimes hear the claim that people are having to choose between heating and eating. My advice to anyone who feels that they are in that position is to call us. Nobody should have to make that choice and there are a lot of things that we can do to help them with their bills, with energy efficiency or with benefits they may be entitled to.
Charities and politicians have criticised your company for increasing domestic fuel tariffs. How do you respond to this criticism?
I understand the concerns of charities and politicians and indeed share their concerns about the impact of higher energy costs on the elderly and vulnerable. Where those concerns are genuine and their views are relevant I am happy to engage with charities and politicians to see if, together, we can find ways to help people.
Politicians of the UK’s two major parties have criticised your company for the extent of profits generated from domestic customers. Do you think your profits are excessive?
I honestly believe our profits are appropriate and fair when judged by any reasonable standard. We have consistently said that we aim to make around 5% profit from supplying energy to domestic customers. Over the past few years the figure has actually been lower. Last year, for example, it was 4.2% and I don't expect any significant increase this year. A 5% profit margin, which is around £2 per week on an average dual fuel bill, is around the same as the profit the major supermarkets make and far lower than other retail businesses, like mobile phone companies.
Another important point is that we do very important things with that profit. We consistently invest more in the energy infrastructure, like power stations and networks, that the country badly needs, than we make in profit. If we are to keep the lights on in future years, the vast majority of politicians agree that we need to keep up that investment - and that means that we have to make a profit. In fact, we invest more in Britain's energy infrastructure than any other company. We also employ 20,000 people across Great Britain and Ireland including more than 5,000 in Scotland.
The same politicians have suggested that your company lacks “transparency” and there has been a suggestion that true profits are “concealed” when energy is generated and sold. What is your profit margin from generation as opposed to the retail profit margin and how do you respond to accusations by politicians that your company “concealed” profit by conducting “secret trades”?
There is no secret trading. All of the energy we produce is sold on the day-ahead market. That means we get the price for our energy that the market sets and there is no opportunity for us to conceal profits in the way some politicians have suggested. This area of our business was audited by one of the big accountancy firms, BDO, and they found that there was no evidence of any wrongdoing. Also, as a UK company listed on the London Stock Exchange, our full accounts are published every year for anyone to scrutinise.
SSE was the first big energy company to sell its energy in this way and we are proud of that. Some other energy companies have followed our lead and we would like all of the energy generators in Britain to sell all of their energy in this way. If this was to happen it would be very close to the 'energy pool' the Labour Party is arguing for and I'd hope that all sides in the energy debate would agree we'd have greater transparency in the wholesale energy market.
Is your company in favour of open and transparent trading where all power is sold on an open exchange?
Yes, we already do it. We think all other energy companies should do the same.
Will you increase domestic fuel tariffs again before the 2015 General Election?
We've said that we will hold prices unless there is a marked and sustained increase in the cost of wholesale energy, network costs or government levies. If wholesale costs were to fall for a sustained period of time, or if the Government was to remove the remaining social and environmental levies from bills, we would be able to reduce household energy prices again - like the price reduction we have just announced.
Will you freeze domestic fuel tariffs should Labour form a government after the 2015 General Election and implement this policy?
We'd like to go further than Labour's policy by not just freezing energy prices but cutting them further. The price reduction we've just announced shows that we are happy to pass on cost savings to customers when we get them. We'd do that again if the Government was to take the remaining environmental and social levies off bills and into general taxation.