Energy firms accused of profiteering after profit margins predicted to double next year
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Personal Finance Editor
Wednesday 30 July 2014
The Big Six energy firms will double their profit margins in the next year increasing accusations that they are profiteering while millions of households are struggling to be able to afford to heat their homes.
The predictions will be officially published by watchdog Ofgem tomorrow, but its chief executive Dermot Nolan let the figure slip out today while announcing the regulator’s plans for upgrading the electricity network.
But that was overshadowed by the row that quickly developed over the news that the regulator reckons energy firms will pocket £106 for each customer in the next 12 months, up from an estimated £53 a year ago, with margins doubling from four per cent to eight per cent.
Labour’s Shadow Energy Minister Tom Greatrex said: “There’s no hiding the fact that on David Cameron’s watch the energy companies are increasing their profits on the back of spiralling bills and a cost-of-living crisis for hard-pressed consumers.”
Dale Vince, founder of independent energy supplier Ecotricity, said: “We don’t need Ofgem to tell us that the Big Six model is broken. Yes, there should be a greater focus on large Big Six profit margins, and customers should benefit from lower bills if their margins do increase substantially.
“But just as important is what energy companies do with those profits – which for the Big Six is primarily paying dividends to shareholders in foreign countries, rather than investing in vital new infrastructure in Britain.”
Meanwhile the energy industry refused to accept Ofgem’s estimates. Angela Knight, Chief Executive of Energy UK said: “It cannot be right to publish numbers and estimates which imply profits which turn out not to exist. Using estimates that are as inaccurate as these, and which often result in misconceptions and misunderstandings, gets us nowhere.”
The argument centres on the regulator’s Supply Market Indicator (SMI) which was set up to help consumers understand what is likely to happen to the different costs that make up their bill for the next 12 months.
Ofgem said that tomorrow’s SMI will show that the estimated margin before tax for a typical large supplier over the next 12 months has risen from £101 to £106 - eight per cent on an average household bill - as a result of falling wholesale and environmental costs.
The watchdog has told suppliers to explain to consumers why, when wholesale prices are falling for this winter, they are not seeing cuts in energy prices.
Concerns that savings weren’t being passed on to customers when wholesale prices fall was one of the main reasons why Ofgem referred the energy market to the Competition and Markets Authority for investigation earlier this year.
However the watchdog said that even though profit margins are likely to increase over the next year, bills will fall. It reckons that average dual fuel bills will go down by £18, as energy efficiency measures improve.
Meanwhile, it said electricity customers will see an average reduction of £12 a year on their bills, from April 2015 because of plans to limit the prices that can be charged by Britain's six distribution companies.
- 1 The difference between a migrant and refugee, in one sentence
- 2 Miley Cyrus calls out hypocrisy of women’s nipples being taboo
- 3 Celebrity Big Brother 2015: Tila Tequila kicked off show after 'describing Hitler as a good man'
- 4 iPhone 5c to be discontinued, no iPhone 6c to replace it
- 5 Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
The difference between a migrant and refugee, in one sentence
Spain accused of 'provocation' after letting Russian submarine refuel off Gibraltar
Allonautilus scrobiculatus: World's 'rarest' creature spotted for only the third time ever
Miley Cyrus calls out hypocrisy of women’s nipples being taboo
Celebrity Big Brother 2015: Tila Tequila kicked off show after 'describing Hitler as a good man'
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Labour leadership: Jeremy Corbyn accused of 'deluding' young supporters with 'claptrap'
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Iain Duncan Smith calls for urgent ESA overhaul as part of drive to cut down welfare costs
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...