The U.K.’s Energy Secretary Ed Davey floated a breakup of Centrica Plc’s British Gas unit and asked the regulator to investigate whether the former state monopoly is profiting from too-high tariffs. Centrica shares fell.
Davey wrote to the watchdog saying British Gas, supplier of energy to about half of U.K. homes, tended to charge the highest prices in the past three years and was the most profitable.
“It looks like there could be a problem in the domestic gas supply market,” he told BBC Radio 4. “They can choose to take no action or to take a full-scale market investigation. There could be a number of remedies if they go down that route, including the breakup of some of these companies.”
Centrica dropped as much as 3.7 percent to the lowest since June 2012 and was down 2.9 percent at 305 pence by 1:01 p.m. in London. SSE Plc, the second-biggest supplier, fell 1.3 percent.
Utility costs have been at the top of the political agenda since September, when opposition Labour Party leader Ed Miliband pledged to freeze prices for 18 months should he win a May 2015 election. Labour has been ahead in the polls since April 2012.
“We’ve been telling people to steer clear of Centrica because of political risk and this is just another sign of it,” Iain Turner, an Exane BNP Paribas analyst, said today. Investors are struggling to price in rising political risk from government action, Liberum Capital Ltd. said in an e-mailed note.
Davey said a cut in profit margins on supplying gas to the levels for electricity would save households an average 40 pounds ($66) a year. Centrica and SSE promised in December to lower prices by an average of about 50 pounds a year after Chancellor of the Exchequer George Osborne pledged to scale back government green levies to ease the cost of living.
“Britain has one of the most competitive energy markets in the world, with gas and electricity prices among the lowest in western Europe,” British Gas Managing Director Chris Weston said today in an e-mailed statement. “Around 80 percent of British Gas customers have switched their tariff or supplier at least once.”