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War Of Words Over Ofgem’s Energy Estimates

A war of words broke out between the “Big Six” energy companies and Ofgem, after the regulator claimed profit margins have hit an eight-year high at £125 per household.

The figure compares to £15 in June, according to Ofgem, which said margins are sharply up as companies, faced with higher energy costs, respond with price rises.

Under increasing political pressure over customer bills, the industry argued the figure was misleading.

Energy UK, representing the major suppliers — E.ON, EDF, British Gas, Scottish and Southern Energy (SSE), Scottish Power, and Npower — said the snapshot did not give a “realistic” picture of average profits.

British Gas, owned by Centrica, said in the first six months of this year its margin for domestic supply was £24, while E.ON said that last year its comparable margin was just £3. SSE did not recognise Ofgem’s figure “in any way”.

The watchdog countered that firms were comparing “apples and pears” by focusing on backward-looking figures and expressed concern over the “transparency” of suppliers’ accounts, on which they base their arguments.

The price report came as Ofgem announced plans to make suppliers simplify billing structures to help customers compare prices — the first of four waves of “radical” reform, including boosting liquidity in the wholesale market so smaller companies can better compete.

Shares in Centrica and SSE, the two British members of the big six, were relatively unmoved by hopes of higher profits, as analysts highlighted the industry’s growing political headache. Liberum saw little room to cut costs.

Nick Campbell, an energy analyst at Inenco, suggested customers’ rush earlier this year to fixed contracts meant firms benefited from high demand during the cool summer as wholesale energy costs dropped, but he warned the expected cold winter could see profits take a hit.

“This is due to them selling at the fixed price, but having to buy the extra gas at a higher price as system demand is higher,” he said.

Ofgem, suppliers, consumer groups and government meet in Westminster on Monday.

The Daily Telegraph, 15 October 2011