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Energy firms to 'double' profit margins, predicts Ofgem | Energy firms to 'double' profit margins, predicts Ofgem |
(about 3 hours later) | |
The big six energy firms are set to double their profit margins over the next year, according to estimates by the regulator, Ofgem. | The big six energy firms are set to double their profit margins over the next year, according to estimates by the regulator, Ofgem. |
A year ago, Ofgem estimated that suppliers would make an average pre-tax profit of £53 per dual fuel customer, a margin of 4%. | A year ago, Ofgem estimated that suppliers would make an average pre-tax profit of £53 per dual fuel customer, a margin of 4%. |
But in the year ahead they now expect energy firms to make £106 per customer, increasing their margin to 8%. | But in the year ahead they now expect energy firms to make £106 per customer, increasing their margin to 8%. |
In response, the industry accused Ofgem of releasing inaccurate figures. | In response, the industry accused Ofgem of releasing inaccurate figures. |
It also said they do not take tax or interest into account. | It also said they do not take tax or interest into account. |
However Ofgem - which will officially publish the details on Thursday - said it was further evidence that the market was not working as well as it should. | However Ofgem - which will officially publish the details on Thursday - said it was further evidence that the market was not working as well as it should. |
It has already referred the industry - and the profits it makes - to the Competition and Markets Authority (CMA). | It has already referred the industry - and the profits it makes - to the Competition and Markets Authority (CMA). |
It has also written to the suppliers to ask why falls in wholesale prices last winter have not resulted in lower bills. | It has also written to the suppliers to ask why falls in wholesale prices last winter have not resulted in lower bills. |
Confidence | Confidence |
Energy UK, which represents the suppliers, said Ofgem's estimates were not accurate. | Energy UK, which represents the suppliers, said Ofgem's estimates were not accurate. |
"It cannot be right to publish numbers and estimates which imply profits which turn out not to exist," said Angela Knight, Energy UK's chief executive. | "It cannot be right to publish numbers and estimates which imply profits which turn out not to exist," said Angela Knight, Energy UK's chief executive. |
"Using estimates that are as inaccurate as these, and which often result in misconceptions and misunderstandings, gets us nowhere," she added. | "Using estimates that are as inaccurate as these, and which often result in misconceptions and misunderstandings, gets us nowhere," she added. |
In response, Ofgem said: "Consumers need a clear explanation from suppliers as to why, when costs are falling, they are not seeing cuts in energy prices as we would expect in a competitive market." | |
"Concerns that savings weren't being passed on to customers when wholesale prices fall was one of the reasons we have proposed a referral of the energy market to the CMA for investigation," the regulator said in an emailed statement. | |
Ofgem said that even though profit margins are likely to increase over the next year, bills are likely to fall. | Ofgem said that even though profit margins are likely to increase over the next year, bills are likely to fall. |
It calculates that average dual fuel bills will go down by £18, as energy efficiency measures improve. | It calculates that average dual fuel bills will go down by £18, as energy efficiency measures improve. |
Price cuts | Price cuts |
In a separate development, Ofgem announced that electricity customers will see an average reduction of £12 a year on their bills, from April 2015. | In a separate development, Ofgem announced that electricity customers will see an average reduction of £12 a year on their bills, from April 2015. |
That follows plans to limit the prices that can be charged by Britain's six distribution companies, which carry power to homes and businesses. | That follows plans to limit the prices that can be charged by Britain's six distribution companies, which carry power to homes and businesses. |
The curbs will affect 29 million English, Scottish and Welsh customers. | The curbs will affect 29 million English, Scottish and Welsh customers. |
Ofgem's plans will also see the distribution companies spend £17bn to upgrade their networks. | Ofgem's plans will also see the distribution companies spend £17bn to upgrade their networks. |
The distribution element makes up about 8% of a typical dual-fuel bill and is the only part controlled directly by Ofgem. | The distribution element makes up about 8% of a typical dual-fuel bill and is the only part controlled directly by Ofgem. |
"Today's announcement is all part of Ofgem's consistent drive to get the best deal for consumers, while maintaining a stable regulatory regime which attracts investment as cheaply as possible," said Dermot Nolan, the regulator's chief executive. | "Today's announcement is all part of Ofgem's consistent drive to get the best deal for consumers, while maintaining a stable regulatory regime which attracts investment as cheaply as possible," said Dermot Nolan, the regulator's chief executive. |
Five out of the six network companies - UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West - were ordered to cut their prices. | Five out of the six network companies - UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West - were ordered to cut their prices. |
Only one, Western Power Distribution, had its pricing and investment plans approved by Ofgem. | Only one, Western Power Distribution, had its pricing and investment plans approved by Ofgem. |
The new prices will apply for eight years, from April 2015 until 2023. | The new prices will apply for eight years, from April 2015 until 2023. |
Ofgem will announce a final decision on the proposals in November after carrying out a consultation. | Ofgem will announce a final decision on the proposals in November after carrying out a consultation. |