SSE boss insists 'we are not profiteers' ahead of facing MPs over price hikes

Will Morris says putting up prices for consumers was a 'last resort.' Credit: PA Archive

We hate putting our prices up. We hate the impact it has on our customers, many of whom are already seeing their household budgets squeezed.

Stable prices are in the interests of customers and energy companies alike. Believe me, putting up prices is a last resort. That’s why I’m disappointed to be writing this article. Although we have shown as much restraint as we could, ultimately the extent to which our costs are rising meant we couldn’t avoid the change.

But rather than simply expressing my deep regret, I think it is important to explain exactly why we have had to make this change.

First, let me touch on profit. This may come as a shock, but on average we make a profit of around 5p in the pound from selling energy to customers.

Unlike some of our competitors, this profit stays in Great Britain and Ireland, where we employ thousands of people in places like Havant, Cardiff and Perth, and pay hundreds of millions in taxes to the government.

We are not profiteers. This price change is about recouping the higher costs we are facing. We know that energy is an essential part of life and that our profits cannot be excessive.

Profits can vary year to year, largely depending on the weather, but over the medium term we think an average profit margin of 5 percent is a fair amount to make for the important work we do through our energy supply business.

What’s more, a recent poll we carried out showed that the vast majority of customers agree with us.

The price of buying energy in global wholesale markets for this winter is yet again higher than it was in the previous year, after the March cold snap led to the highest ever out-turn price for gas.

The backdrop for this is the UK having to import a growing proportion of its gas as North Sea reserves dry up. We have to compete for the energy we buy in global energy markets, with increased demand from the likes of China and Japan pushing up prices.

But believe it or not, the cost of the energy itself now only accounts for around half of a typical bill - and it’s not the only cost that’s gone up.

More: SSE profit rise: A case of rather bad timing

SSE has announced a price hike today. Credit: Press Association

The cost of using the pipes and wires to transport energy to your home is going up in order to pay for urgently-needed upgrades to modernise the UK’s network infrastructure.

And the cost of government environmental schemes paid for through energy bills is rising too.

If you know what I mean when I say ‘government schemes’ you’re in the minority.

A 2012 survey by Consumer Futures found that as many as nine in 10 people do not know that they pay for these schemes - although with recent media attention awareness may be increasing. They include programmes to provide free energy efficiency measures, subsidies for low-carbon energy and incentives for home and business-owners to produce their own renewable power and heat.

But whether you know about them or not, the costs are going up, fast.

For a typical dual fuel energy customer, these schemes now cost more than three times what they did in 2005.

Costs of government schemes to decrease the UK's CO2 emissions Credit: Julian Stratenschulte/DPA/Press Association Images

We agree wholeheartedly with the aims of these schemes: Help for the fuel poor, support for low-carbon energy and improved energy efficiency.

They will help the UK to meet some of its long-term economic, environmental and social objectives. But they represent a cost to society that most people are not aware of, and it’s not spread fairly.

They are what some would call stealth taxes, many of which were introduced by the very same politicians now so outraged by rising prices.

A few weeks ago, Ed Miliband (who as Energy Minister played no small part in bringing in these schemes) grabbed the headlines by promising to freeze energy prices for 20 months.

Plenty has been said about the feasibility and even the legality of this, but I for one was glad to see Labour addressing the very real problem of rising energy costs - which are the real story.

Read: Miliband SSE price hike shows 'need to freeze bills'

We, too, want lower energy bills for our customers. But why start in 2015? Let’s do it now in a way that will make bills cheaper and fairer for good.

Let’s take the so-called ‘stealth taxes’ for government policies out of energy bills and pay for them through taxation instead. Taxation is progressive: Those who can afford it pay more and those who can’t pay less.

We reckon this would take over £110 a year off the average energy bill, and that figure is set to get bigger as the cost of government schemes increases.

SSE has announced a price hike today. Credit: PA Wire

In the meantime, I have a simple message for any customer worried about their energy bills: We can help.

Rising prices do not have to mean rising bills. Energy efficiency really can make a difference, and it already has. If energy usage had stayed at 2005 levels, the average bill would be around £400 more than it is today. There are schemes out there to help people improve the energy efficiency of their homes - please take advantage of them if you can.

Unfortunately we can’t control energy prices. About 85 percent of a typical bill is made up of costs outside our direct control.

Changing our prices was a difficult decision to make. But it makes us even more determined to do all we can to help our customers.

Will Morris is the Managing Director of SSE. His views do not necessarily represent those of ITV News.

More: How to escape the energy price trap