Big Six energy producers under fire over excessive profits ahead of grilling by MPs

Report accuses firms of artificially inflating prices through lack of competition

Energy bills are being artificially inflated by a lack of competition in the supply market, according to a damning new report, which argues increased competition could cut £70 off the average annual dual-fuel bill by 2020.

On the day MPs are due to grill representatives of the Big Six energy providers, IPPR, the think-tank behind the report, is calling for “greater fairness in terms of costs charged to energy consumers”.

It also finds that the gap between the most and least efficient energy supplier has widened since 2007.

Will Straw, an associate director of IPPR, said: “The key question for the Big Six is why profits of 5 to 6 per cent are acceptable in a competitive market. In 1998, as the market was liberalised, the regulator believed 1.5 per cent was an adequate margin for energy suppliers. Profits in other sectors like supermarkets are as low as 2 per cent.”

The MPs will today question the energy giants on a range of issues, including reasons for the increase, the difference of pricing policies between energy suppliers and how the transparency can be improved.

The IPPR report and the Select Committed come the day after research by the industry regulator Ofgem cast doubt on claims by the Big Six that recent bill hikes had been driven by rising wholesale prices.

Just days after Scottish Power became the fourth of the Big Six providers to hike energy prices recently, Ofgem revealed that wholesale gas prices had only risen 1.7 per cent in the past year. The four utilities have increased their gas and electricity prices by up to 11.1 per cent in the past few weeks alone, with the other two expected to follow suit shortly.

Ofgem found rising wholesale gas prices should only have pushed up the average dual-fuel energy bill by £10 over the period.

It estimates that the average net profit margin has more than doubled over the past year from £45 per household to £95.

The Big Six, however, were quick to shoot down Ofgem’s analysis. “The Ofgem methodology is at best an approximation of what companies’ hedging profile is,” a spokesman  for Centrica, the owner of British  Gas, said.

“We buy a certain amount of gas more than two years in advance, and if you look at the 24-month figure to October 2013, there has been an 18 per cent increase in wholesale cost.”

Ofgem has based its estimates on how it believes a representative supplier would buy gas and energy in the forward market – to smooth out volatility in the wholesale prices – and works on the basis that companies start to buy energy 18 months ahead of time.

But the Big Six countered that each supplier had a different “hedging strategy”, buying gas and power between 12 and 24 months ahead, meaning costs vary.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
Sport
footballBrighton vs Arsenal match report
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project
Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

Diana Krall interview

The jazz singer on being friends with Elton John, outer space and skiing in Dubai
Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

Pinstriped for action

A glimpse of what the very rich man will be wearing this winter
Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

Russell T Davies & Ben Cook: How we met

'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Bill Granger recipes: Our chef serves up his favourite Japanese dishes

Bill Granger's Japanese recipes

Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
Michael Calvin: How we need more Eric Cantonas to knock some sense into us

Michael Calvin's Last Word

How we need more Eric Cantonas to knock some sense into us