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Minister to investigate energy firms after profit claim | Minister to investigate energy firms after profit claim |
(about 2 hours later) | |
A claim that energy suppliers are making larger profits than they have admitted is to be investigated by the Business Secretary, Greg Clark. | |
Gas and electricity firms may be making six times more than they state, according to the Sun newspaper. | Gas and electricity firms may be making six times more than they state, according to the Sun newspaper. |
However, trade body Energy UK rejected the Sun's claims, saying they were "a misrepresentation of the facts". | However, trade body Energy UK rejected the Sun's claims, saying they were "a misrepresentation of the facts". |
The allegations were based on a report commissioned by Energy UK from accountancy firm PwC. | The allegations were based on a report commissioned by Energy UK from accountancy firm PwC. |
According to the regulator, Ofgem, UK energy firms make a 4% profit margin on the price of a typical dual fuel bill. | According to the regulator, Ofgem, UK energy firms make a 4% profit margin on the price of a typical dual fuel bill. |
But using figures in the PwC report, the Sun said that suppliers could actually be making a 24% profit margin. | But using figures in the PwC report, the Sun said that suppliers could actually be making a 24% profit margin. |
In the report, PwC said the average cost of supplying energy to a household - covering the cost of wholesale energy and sending bills - was £844 a year. | In the report, PwC said the average cost of supplying energy to a household - covering the cost of wholesale energy and sending bills - was £844 a year. |
The Sun said 70% of customers are on standard variable tariffs, and pay up to £1,172 a year. | |
Assuming the costs are £844 a year, that would leave them with a profit of up to £272, or 24%, after VAT is removed. | Assuming the costs are £844 a year, that would leave them with a profit of up to £272, or 24%, after VAT is removed. |
Price pressures | Price pressures |
The Sun accused Energy UK of cherry-picking parts of the report to put on its website that failed to include details of the profits. | The Sun accused Energy UK of cherry-picking parts of the report to put on its website that failed to include details of the profits. |
Energy UK said it completely rejected any implication that the PwC report was changed. | Energy UK said it completely rejected any implication that the PwC report was changed. |
"The report used the publicly available consolidated segmental accounts of major energy suppliers which are provided to the regulator, Ofgem," a spokesman said. | "The report used the publicly available consolidated segmental accounts of major energy suppliers which are provided to the regulator, Ofgem," a spokesman said. |
"These accounts show average profits of 4% and that figure appears on the Energy UK website." | |
The spokesman added: "The purpose of the report is simply to help understand how the different pressures on an average bill have changed over recent years. | |
"It was not intended to present, or to hide, how much profit different firms make across their various tariffs." | "It was not intended to present, or to hide, how much profit different firms make across their various tariffs." |
Lawrence Slade, chief executive of Energy UK, told the BBC: "The Sun's numbers are a complete misrepresentation of the facts. | Lawrence Slade, chief executive of Energy UK, told the BBC: "The Sun's numbers are a complete misrepresentation of the facts. |
"You can't extrapolate in the way the Sun has. It's just not maths." | "You can't extrapolate in the way the Sun has. It's just not maths." |
Shop around | |
Business Secretary Greg Clark said he would examine the evidence and ask Energy UK for a meeting. | |
"This report appears to confirm my concern that the big energy firms are punishing their customers' loyalty rather than respecting it," he said. | "This report appears to confirm my concern that the big energy firms are punishing their customers' loyalty rather than respecting it," he said. |
Some customers are put on a standard variable tariff, which is usually the most expensive option, after a cheaper 12-month deal ends, unless they switch to another rate. | |
In total, 66% of customers are on standard variable tariffs, according to Ofgem. | |
The regulator pointed out that customers can save £300 a year by switching to a fixed-rate tariff, and said those on standard variable tariffs were contributing to higher profits. | |
"Suppliers do make higher profits from customers that remain on standard variable tariffs than those on fixed deals," an Ofgem spokesperson said. | |
"That is why we are working to make it quicker and easier for consumers to shop around and get a better deal." |
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