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Energy suppliers criticise profitability figures

Energy suppliers have criticised figures from their regulator, showing that their profitability has soared.

According to the BBC, Ofgem said that the profit margin for energy firms had risen to £125 per customer per year, from £15 in June, but suppliers said that was misleading. The figure is a snapshot of how much suppliers would make from dual-fuel customers if energy prices and bills stayed unchanged for the next year.

Ofgem also said it would force suppliers to simplify tariffs. “A snapshot of profits every few months does not provide a realistic picture of the average profits over a year of companies in the sector,” said Christine McGourty, director of Energy UK, which represents energy suppliers.

“It is the rising cost of wholesale energy that has contributed to the increase in customers’ bills this year.”

The profit margin has risen because, since June, the providers have raised prices by more than the increase in wholesale energy costs. However, Ofgem predicts that energy firms’ profit margins will fall to about £90 per customer next year as wholesale prices continue to rise.

The profit margin is a volatile measure, and indeed showed the providers losing money for much of the time from 2004 to 2009.

“The approach adopted by Ofgem in calculating this figure is entirely theoretical and does not reflect how a responsible energy supply business manages its energy procurement strategy in reality,” said SSE, which estimates its profit margin at £62 per customer.

Responding to news from Ofgem Friends of the Earth’s executive director Andy Atkins said: “It’s outrageous that Big Six profits are soaring while families across the nation struggle to pay rocketing fuel bills and shiver in cold homes.

“Government action to end this rip-off is essential, but Ministers must also tackle the main cause of huge fuel price hikes - our reliance on expensive gas.

“Energy firms must be forced to fix our broken electricity system by investing in energy efficiency and clean, home-grown power we can all

British Gas said it had made £24 after tax per dual-fuel household. It said that Ofgem’s methodology was “flawed excluding, as it does, the discounts we give our customers and the benefits they receive from fixed price contracts, as well as understating our commodity costs”.

But Ofgem said that the suppliers were “comparing apples with pears” and expressed concern about the transparency of the accounts from which suppliers have taken their own profit figures.

In addition to the profit figures, Ofgem also published its simplification plan under which suppliers would be forced to have no-frills tariffs. These would consist of a standing charge - fixed by the regulator - plus a unit charge for energy used.

It means that the only number consumers would have to compare between suppliers would be the unit energy charge.

“The process of trying to switch from one supplier to another is hideously complicated - very off-putting even for quite intelligent people,” Tim Yeo MP, chair of the Energy and Climate Change Committee told the BBC.

He also criticised the rise in profit margins to a three-year-high as, “evidence of absolutely crass behaviour by the energy companies, with a jump in prices announced in the last few months ahead of what will be a winter in which most families face their highest ever electricity and gas bills”.

Under Ofgem’s simplification plan, more complicated tariffs would still be available, but they would have to be for a fixed period, with price increases not being allowed for the duration of the deal.

The regulator will publish its detailed proposals for consultation next month and hopes to have implemented some of its reforms in time for winter 2012. The average dual-fuel bill is now £1,345 a year following recent price rises from all the big suppliers

It means that the only number consumers would have to compare between suppliers would be the unit energy charge.

“The process of trying to switch from one supplier to another is hideously complicated - very off-putting even for quite intelligent people,” Tim Yeo MP, chair of the Energy and Climate Change Committee told the BBC.

He also criticised the rise in profit margins to a three-year-high as, “evidence of absolutely crass behaviour by the energy companies, with a jump in prices announced in the last few months ahead of what will be a winter in which most families face their highest ever electricity and gas bills”.

Under Ofgem’s simplification plan, more complicated tariffs would still be available, but they would have to be for a fixed period, with price increases not being allowed for the duration of the deal.

The regulator will publish its detailed proposals for consultation next month and hopes to have implemented some of its reforms in time for winter 2012. The average dual-fuel bill is now £1,345 a year following recent price rises from all the big suppliers