Energy firms accused of profiteering after profit margins predicted to double next year

The energy industry has refused to accept Ofgem’s estimates (PA)

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.