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Rip-Off Energy Firms See Profits Per Customer Soar By Over 700%, Says Regulator

Energy firms’ profit margins have soared from £15 per customer per year to an astonishing £125 in just the past four months, it emerged today. The staggering profit margins for suppliers equates to a 733 per cent increase in the amount made from customers since June, calculates industry regulator Ofgem.


The figures are based on a snapshot of the amount energy firms would make if prices for dual fuel customers were to remain unchanged for the next year.


Energy suppliers have blamed the price hikes on an increased dependance on imports and a rise in wholesale prices.


The soaring profit margins were revealed as it emerged this week that families are facing their biggest fall in income since the 1970s.


The price rise in recent months has led to warnings of increased ‘fuel poverty’, where any household spends 10 per cent of their median income on gas or electricity.


Industry regulator Ofgem said that as a result of the rises the average dual-fuel bill has increased by £175 and by November will amount to £1,345.


The regulator said it expects profit margins to fall back to around £90 per customer next year, as it also confirmed plans to force suppliers to simplify energy tariffs to make comparing prices easier.


Ofgem today announced plans for the ‘first of four waves of reform’ to break the ‘stranglehold of the Big Six’ energy firms in the electricity market.


Britain’s six largest utilities firms are British companies Centrica and Scottish and Southern Energy (SSE), German groups E.ON and RWE, French operator EDF and Spanish company Iberdrola. 


Despite recent near-recession economic conditions, the current profit margins for ‘Big Six’ energy suppliers are higher than ever before.


Ofgem denied that the energy market is broken. A spokesman said: ‘Our latest retail report does nothing to change our findings in March that competition is being stifled by a combination of tariff complexity, poor supplier behaviour and a lack of transparency.

 

‘This lack of competitive pressure means we are not confident prices are being set fairly. This is why we are proposing to introduce the biggest shake up in the retail market since competition began.’

 

Energy firms responded to the Ofgem findings by rejecting Ofgem’s methods for calculating the price hike.


Rising profits: The net margin line on this graph illustrates how energy supplier profit margins have soared in recent months

Energy firms blamed the price increases on increased dependance on importand and rising wholesale costs

 

Figures from Ofgem show the rise in suppliers' profit margins, as well as the corresponding price hike in fuel bills to over £1300 for customers

Figures from Ofgem show the rise in suppliers’ profit margins, as well as the corresponding price hike in fuel bills to over £1300 for customers

 

SSE said it ‘did not recognise in any way’ the regulator’s figure of £125 for a dual fuel domestic customer, adding in a statement: ‘The approach adopted by Ofgem in calculating this figure is entirely theoretical and does not reflect how a responsible energy supply business manages its energy procurement strategy in reality.


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.’


However, Shadow energy secretary Caroline Flint supported the findings, saying: ‘People will be shocked, if not surprised, that, at a time when millions of families are struggling with their energy bills, utility companies are enjoying soaring profits.


‘With forecasts of a bitter winter looming, it’s more important than ever that families are not being ripped off.


‘The Government has to get a grip on energy bills. It’s not good enough to tell people to shop around. We need fundamental reform of the energy market, to break the stranglehold of the big six, allowing new entrants, increasing competition and driving down energy bills for families.’


Energy Secretary Chris Huhne is due to meet energy companies, consumer groups and the regulator on Monday in a bid to ensure that households are given help in saving money on their energy bills this winter.


Mr Huhne said he welcomed Ofgem’s review proposals, which could come into force by next winter.

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