Ofgem has repeated calls for people to shop for better deals on energy supplies amid signs that Britain’s six leading suppliers are declining to pass on to customers recent savings in wholesale fuel costs.
The energy watchdog released data on Friday showing that average pre-tax margins fell slightly last year from £53 to £48 – or about 4 per cent – on an annual dual-fuel bill of £1,225. However, Ofgem’s latest monthly forecast, based on existing tariffs and cost trends, is for pre-tax margins to rise to £102 during the next 12 months.
Rachel Fletcher, senior partner at Ofgem, said: “There’s room for price cuts and you wouldn’t be expecting prices to go up.
“If customers haven’t switched in the last two years, they are likely to be able to save £200 on their energy bills.”
Ofgem officials conceded that its monthly supply market indicator, designed to give a rolling year-ahead forecast of profits made by energy suppliers, could vary widely according to changes in weather and pricing changes.
Ms Fletcher also pointed out that sharp falls in the daily spot prices of gas and electricity during the summer should not be taken as a crude guide to how much energy retailers were paying for their supplies, which were often bought and hedged two years ahead.
Even so, those falls should allow “some feed through” to lower costs and leave retailers with scope to consider price cuts, she argued.
Energy UK, which represents energy retailers, said retail margins for 2013 had hit a five-year low. It said: “It is right and proper that companies should be allowed to make a profit when they perform well, since it is vital to attract investment.”
Ms Fletcher’s remarks came as Ofgem confirmed new requirements on the UK’s leading energy retailers to enforce more transparent financial reporting of profits and costs made across their retail and power generation businesses.
New entrants to the retail market, such as First Utility, have consistently claimed that big suppliers led by Centrica, which control large segments of their own gas and electricity supplies, enjoy an unfair advantage in being able to offer potentially better rates to their own retail arms than competitors.
Ms Fletcher said on Friday that Ofgem was generally satisfied that the big six suppliers were accurately reporting transfer payments between their generation and retail divisions. Last year, generating profits across the big six’s generating divisions fell sharply from £1.9bn to £1.24bn – in part because of higher fuel costs and also writedowns on the closure of old power stations.
However, Ms Fletcher said the apparent clean bill of health given to how the big six companies apportion profits between their generation and retailing arms did not undermine arguments that integrated businesses enjoyed a structural advantage over smaller retail-only rivals.
“There’s the question of whether there is still an inherent hedge and advantage that integrated companies have that doesn’t get passed on to customers,” she said.
The issue is among several “theories of harm” being examined by the Competition and Markets Authority as part of its investigation into claims of anti-competitive behaviour by energy suppliers. A report is expected late next year.
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