Energy companies in profits row

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Energy companies were hit by a new storm over prices today after it was claimed their average profit per customer had jumped to £125 a year.

Ofgem's latest price report indicated profits on a standard dual fuel deal had risen from £15 in June following a spate of price hikes in recent weeks.

The average dual fuel bill now costs £1,345 and although Ofgem expects profit margins to drop next year, chief executive Alistair Buchanan said it was "not the case" that customers could be confident that prices are "being set by companies competing in a fully competitive market".

Rising wholesale prices have been cited by suppliers for the recent spate of tariff hikes and while Ofgem said such prices had risen by 40% to £115 per customer over the past year, it added that a combination of confusing tariffs, poor behaviour from energy suppliers and lack of transparency meant that "radical change" was still needed in the sector.

As a first move, a new simplified standard tariff will be introduced. There are more than 400 different tariffs available at present but in future firms will have to offer a no-frills version featuring just the unit price for energy used and the standing charge.

Energy firms hit back at Ofgem's claims today and said the methods used by the regulator to calculate their profit margins were wrong.

Perth-based SSE said it "did not recognise in any way" Ofgem's calculation of profits of £125 for a dual fuel domestic customer and estimated the figure for its own customers at £62.

British Gas also said Ofgem was wrong and its methodology "flawed".

"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," the firm said.

Industry lobby group Energy UK also criticised the Ofgem calculations.

Director Christine McGourty said: "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.

Energy Secretary Chris Huhne, who is due to meet energy companies, consumer groups and the regulator on Monday to ensure that households are given help in saving money on their energy bills this winter, welcomed Ofgem's review proposals, which could come into force by next winter.

He said: "Both the Government and Ofgem are working to boost transparency in billing and increase competition in the energy market to help keep prices down."

Ofgem confirmed today that for the new simpler bills it will set the standing charge while each supplier will only have one "no frills" standard tariff per payment method, per fuel.

The regulator hopes this will enable households to tell at a glance whether they can save money by switching supplier or moving to a new deal.

All other, more complex, tariffs must have a specified end date and fixed terms and conditions. Automatic rollover at the end of the contract will be banned but there will be no other restrictions.

Consumer groups gave a cautious welcome to the proposals.

Consumer Focus chief executive Mike O'Connor said: "Consumers are faced with a thicket of energy tariffs that can seem designed to confuse all but the most persistent and numerate consumers. More than 60 new tariffs have appeared so far this year, despite all the pressure for fewer and simpler tariffs," he said.

Which? added that the proposals would help remove some of the complexity and confusion in the energy market.

Further measures for business customers, easier access to the wholesale market, and ways to make energy company accounts more transparent will follow over the next three months, Ofgem said.

Rising utility bills helped push consumer price inflation up to 4.5% in August and are forecast to send it close to, or even above, 5% next week as more of the recently-announced increases come into effect.