Britain’s big six energy suppliers would be forced to simplify their tariff systems under reforms proposed by Ofgem, after the energy regulator found the companies’ profit margins had soared since June.
The watchdog said on Friday that profit margins had risen to £125 per year per customer from just £15 in June, although it added that net margins would probably fall back in the coming months. The analysis showed the average annual dual fuel bill is £1,345 per customer.
The profit is a snapshot of the amount suppliers would make from dual fuel customers if energy prices and bills stay unchanged for the next 12 months, but the figures provoked a storm of protest from suppliers.
“Ofgem’s report is misleading,” said Phil Bentley, managing director at British Gas, which is owned by Centrica. “Their methodology is 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 …Our own audited accounts show that, for the first six months of this year, our margins per dual fuel household were £24 after tax. In 2011, profits will be lower than 2010.”
Scottish and Southern Energy said it did “not recognise in any way” Ofgem’s “snapshot estimate”. It added: “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.”
But Ofgem said suppliers’ arguments were “backward looking to 2010” and compared “apples with pears”.
Britain’s leading energy suppliers have been accused of anticompetitive behaviour, confusing prices and profiteering from rises in wholesale fuel costs.
As part of Ofgem’s bill simplification plan, consumers wanting a “no frills” tariff will get a simple unit price and a fixed standing charge set by the watchdog. Domestic customers opting for other tariffs will get protection against price increases for the duration of their deal, while standardised price information will allow consumers to more easily compare tariffs.
The proposed reforms are subject to a consultation process and could be implemented by winter 2012.
“Simple tariffs, clearer bills and annual statements” would result from the new model, Ofgem said. The planned reforms follow the watchdog's findings in March that competition was being stifled by a combination of tariff complexity, poor supplier behaviour and lack of transparency.
Suppliers and consumer groups will meet the government on Monday at an energy summit hosted by Chris Huhne, the energy secretary.
Which?, the consumer group, called on the government and suppliers to use the summit to “agree how they can do more to help people this winter, as part of their effort to start rebuilding trust with customers”.
Ofgem plans to publish proposals in November on how to reform the energy market to help the business sector. In December it will make further proposals on liquidity to break the stranglehold of the “big six” in the wholesale electricity market.
The overhaul of the UK energy market is being negotiated as the government pushes the industry to begin a £200bn investment in the renewal of energy infrastructure.
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