Energy firms to 'double' profit margins, predicts Ofgem
- 30 July 2014
- From the section Business
The big six energy firms are set to double their profit margins over the next year, according to estimates by the regulator, Ofgem.
A year ago, Ofgem estimated that suppliers would make an average pre-tax profit of £53 per dual fuel customer, a margin of 4%.
But in the year ahead they now expect energy firms to make £106 per customer, increasing their margin to 8%.
In response, the industry accused Ofgem of releasing inaccurate figures.
It also said they do not take tax or interest into account.
However Ofgem - which will officially publish the details on Thursday - said it was further evidence that the market was not working as well as it should.
It has already referred the industry - and the profits it makes - to the Competition and Markets Authority (CMA).
It has also written to the suppliers to ask why falls in wholesale prices last winter have not resulted in lower bills.
Energy UK, which represents the suppliers, said Ofgem's estimates were not accurate.
"It cannot be right to publish numbers and estimates which imply profits which turn out not to exist," said Angela Knight, Energy UK's chief executive.
"Using estimates that are as inaccurate as these, and which often result in misconceptions and misunderstandings, gets us nowhere," she added.
In response, Ofgem said: "Consumers need a clear explanation from suppliers as to why, when costs are falling, they are not seeing cuts in energy prices as we would expect in a competitive market."
"Concerns that savings weren't being passed on to customers when wholesale prices fall was one of the reasons we have proposed a referral of the energy market to the CMA for investigation," the regulator said in an emailed statement.
Ofgem said that even though profit margins are likely to increase over the next year, bills are likely to fall.
It calculates that average dual fuel bills will go down by £18, as energy efficiency measures improve.
In a separate development, Ofgem announced that electricity customers will see an average reduction of £12 a year on their bills, from April 2015.
That follows plans to limit the prices that can be charged by Britain's six distribution companies, which carry power to homes and businesses.
The curbs will affect 29 million English, Scottish and Welsh customers.
Ofgem's plans will also see the distribution companies spend £17bn to upgrade their networks.
The distribution element makes up about 8% of a typical dual-fuel bill and is the only part controlled directly by Ofgem.
"Today's announcement is all part of Ofgem's consistent drive to get the best deal for consumers, while maintaining a stable regulatory regime which attracts investment as cheaply as possible," said Dermot Nolan, the regulator's chief executive.
Five out of the six network companies - UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West - were ordered to cut their prices.
Only one, Western Power Distribution, had its pricing and investment plans approved by Ofgem.
The new prices will apply for eight years, from April 2015 until 2023.
Ofgem will announce a final decision on the proposals in November after carrying out a consultation.