Energy investment 'no excuse for overcharging'

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The Independent Online

Energy companies were today warned by the industry watchdog against using investment plans "as a shameful excuse to overcharge consumers".

The warning came as Ofgem's quarterly price report showed falling wholesale energy prices have pushed suppliers' margins to a five-year high.



Energy companies made an average £210 per dual-fuel customer in November before running costs and profits - up from £160 three months earlier, the watchdog said.



And this margin will widen further if suppliers refuse to lower prices as wholesale costs are expected to fall by £70 over the next six months, according to the regulator's calculations.



Chief executive Alistair Buchanan said: "Ofgem's role is to ensure that companies can invest, but do not use investment as a shameful excuse to overcharge consumers.



"At the moment, the effect of companies smoothing prices has been neutral on consumers, but if prices stay unchanged in the New Year, then we will see customers losing out."



Ofgem's review added that for the UK's 'big six' energy firms, higher retail returns have been offset by lower generation returns as economic demand falters and prices fall.



Excluding suppliers' profits and running costs of just over £120, companies were making around £85 per dual-fuel customer in November, the regulator said.



This is more than double the £35 seen three months earlier - reflecting wholesale costs falling from £610 to £555 in average dual-fuel bills which were unchanged at £1185, its figures showed.



The current profitability contrasts with the 2006-8 period when companies chose to shield their customers from rising wholesale prices, leaving them in a break-even or loss-making position.



Ofgem's report said: "These companies have chosen through their pricing to smooth profits over last ten years, which sometimes benefits consumers and sometimes disadvantages them."



The overall impact of energy pricing policies on the consumer was currently "close to neutral", the report added.

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