Centrica shares take a beating in wake of Davey’s attack. Here’s what you need to know
Energy giant Centrica has become the biggest faller on the FTSE 100 in the wake of energy secretary Ed Davey's letter to regulators, urging them to investigate the profit margins of the big six energy companies.
Shares in Centrica, which owns British Gas, have fallen by as much as three per cent this morning. Davey's letter seen by the BBC said that the average profit margin for gas is around three times that of electricity.
According to Davey, It is not just company profits that are in need of a more watchful eye from regulators but also the extent to which some companies account for a disproportionate share of the market.
The energy secretary made special reference to British Gas, which accounts for 41 per cent of the gas market.
Davey asked the competition regulators to consider all possible remedies “including a break-up of any companies found to have monopoly power to the detriment of the consumer.”
Speaking to BBC Radio 4 this morning Davey said:
It looks like there could be a problem in the domestic gas supply market. I want them to think radically. It’s an independent process, they can choose to take no action or to take a full scale market investigation, and as I set out in my letter there could be a number of remedies if they go down that route, including the break-up of some of these companies.
The big six have borne the brunt of the public's frustration with rapidly rising energy prices. Centrica has seen its shares fall by a quarter since Ed Miliband's pledge to freeze energy prices last year.
However, experts have warned that political interference into the energy market could spawn a host of unintended consequences.
In December, the secretary-general of the OECD, Angel Gurria, said:
If you freeze the price of energy and the international price of energy rises, it means there's going to be a very big difference to pay.
Who's going to pay the difference? Well, are you going to ask the investors to take the difference? Well, you know they'll probably go bankrupt.
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