Dispatches delves into the accounts of Big Six Energy suppliers

4 November 2013

New research for Channel 4 Dispatches reveals how consumers are trying to deal with spiralling energy bills. The programme also investigates the profitability of the ‘Big Six’ energy companies, how they are structured and how they pay their taxes. (Channel 4 Dispatches. Energy Bills Exposed.  Monday 4 November, 8pm).

Channel 4 Dispatches also includes the results of a survey carried out by Which? for the programme. It reveals that 43 per cent of all energy consumers are worried about getting into debt as a result of rising energy prices; 24 per cent of energy consumers say they have taken money out of savings to pay for a bill in the last 12 months and 16 per cent say they have taken out credit or borrowed money in order to pay an energy bill.

The research, carried out for Channel 4 Dispatches by respected forensic accountant Richard Murphy of Tax Research UK, is a comprehensive study into all of the filings the Big Six energy suppliers have made in relation to their UK activities, including the amount they pay for wholesale energy and the margins they make on generation and retail supply.

The fact that all of the companies have highly complex accounts makes it difficult for analysts, including regulator Ofgem, to scrutinise easily the amount each company is making in the UK.

Channel 4 Dispatches’ analysis reveals how the way companies are structured helps them potentially minimise their tax liabilities.

According to its 2012 accounts E.ON UK plc, the parent company of the Big Six energy retailer, borrows more than £6.4bn and loans out £5bn to other E.ON group companies. However, the interest rate on the money it loans appears to be lower than the interest rate on the money it borrows. This could have resulted in the company reducing its taxable profits by as much as 50 per cent, with a potential UK tax saving as a result. There is no suggestion that this is in breach of the law.

Richard Murphy tells Channel 4 Dispatches: “My estimate is that if actually they simply charged the same rate of interest on the money going out as they were charged on the money coming in, they would increase their profits in this country by 50 per cent and therefore they’d have a weaker case for arguing that they had to increase prices as they weren’t as profitable and they would also be paying more tax in the UK.”

MP John Robertson, who sits on Parliament’s Energy and Climate Change Committee, tells Channel 4 Dispatches:  “The money they are taking out might be making their company a lot but its taking money away from the British tax payer… we have to look at that …change the law to stop them from doing it.”

In a statement, E.ON, which has not announced a price increase so far this winter, insisted that it looked to lend money at a higher rate than it borrowed, said that research by Channel 4 Dispatches  “ignores the fact that we run our businesses separately. Your research therefore is based upon the company that that contains our generation activities, which are not pertinent to our supply activities.

Dividends paid out (to shareholders or from UK arm of company to the foreign-owned parent company) by three of the Big Six have increased significantly in the last four years. EDF’s have almost tripled to £677m since 2009. Centrica’s have risen by £200m to £816m. In total, excluding e.On, whose dividends are difficult to ascertain, the remaining ‘Big 5’ companies paid out £2.4bn in dividends last year, up from £2.1bn in 2009.

Richard Murphy tells Channel 4 Dispatches: “I think there’s no doubt that companies here are using smoke and mirrors to hide from us, from regulators, from the public, the view of what is really going on in their UK businesses. When they say ‘our margin on supplying you is only two, three, four percent’, it ignores the fact that they’ve also made money on generation, they’ve also made money in wholesale, but that isn’t in their profit margin, that’s hidden from view.”

Energy UK, the trade body that represents all the major suppliers, declined to be interviewed for the programme. In a statement, they told Channel 4 Dispatches that “profit is necessary for employment and investment in this country so we can build the new power stations that will provide ongoing security of supply.

ENDS

 

Notes to editors:

Populus, on behalf of Which?, interviewed a representative sample of 2064 UK adults online between 2nd and 3rd October 2013.  Data were weighted to be demographically representative of all UK adults. These results focus on those who have sole or joint responsibility for paying an energy bill, a sample of 1834 consumers. Populus is a member of the British Polling Council and abides by its rules.  

Dividends

COMPANY	2009	2010	2011	2012
Centrica	£635m	£668m	£762m	£816
EDF Energy*	£270m	-	£712m	£677m
EON*	-	£240m	£160m	-
nPower*	£120m	£120m	£125m	£125m
Scottish Power	£500m	£550m	£250m	£0.1m
SSE	£618.5m	£658.9m	£716.9m	£770.5m

*EDF Energy’s UK operation appears to have paid more in dividends to its parent company over the four years than it made in profit.

*It is hard to get a sense of EON’s UK operation’s dividends, but one of its holding companies, Powergen Group Investments, received £240m in 2010 and £160m from shares.

*nPower dividends are paid from a near-dormant holding company, RWE nPower Holdings plc.

Profit Margins*

COMPANY	2011 Retail* Profit	2011 Generation Profit	2012 Retail* Profit	2012 Generation Profit
Centrica	£544m	£258m	£606m	£291m
EDF Energy	-£124m	£1,174m	-£92m	£1,058m
EON	£78m	£293m	£98m	£173m
nPower	-£56m	£168m	£131m	£126m
Scottish Power	-£10.8m	£259.5m	£128.5m	£94.4m
SSE	£250m	£466m	£318m	£392m

 

COMPANY	2011 Retail* Margin (%)	2011 Generation Margin (%)	2012 Retail* Margin (%)	2012 Generation Margin (%)
Centrica	6.86	17.50	6.64	21.86
EDF Energy	-4.84	30.82	-3.04	24.94
EON	1.98	16.41	2.26	10.01
nPower	-1.81	25.53	3.61	15.38
Scottish Power	-0.43	14.03	4.51	6.84
SSE	5.77	39.16	6.36	33.31

 

*As reported to Ofgem in the yearly Consolidated Segmental Statements. Profit is defined as ‘Earnings Before Interest and Tax’.

*Retail figures are the aggregate of domestic gas and domestic electricity retail.