Energy firm profit margins to rise, forecasts regulator

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The energy regulator Ofgem says the big energy firms are likely to enjoy a small increase in their profit margins in the coming year.

At the same time, customers will see a small fall in their annual bills.

The forecast comes against the background of international oil prices falling more than 50% since last summer.

Ofgem forecasts that customers’ average dual-fuel bills will now drop by £21 to £1,305 in the year ahead.

At the same time, the profit margin per customer of a typical large supplier will rise to £114, £9 more than Ofgem estimated last November.

The calculation takes account of the small cuts in gas tariffs announced by the big-six energy suppliers in the past couple of weeks.

The improved profit margins that firms can expect to make are because of further “significant declines” in the wholesale cost of buying gas and electricity.

Ofgem’s figures suggest that the big firms have not fully passed on the fall in wholesale prices they have enjoyed in the past year.

A year ago the regulator estimated that wholesale gas and electricity costs would contribute £636 to an average customer’s bill in the following 12 months.

That forecast contribution will go down, it now says, to £574 in the next 12 months – a drop of £62.

Other costs

Only 44% of a typical household bill is made up of wholesale energy costs.

Most of the rest is due to network charges, the cost of meeting environmental and social obligations, and the companies’ own operating costs.

Taken together, these elements are forecast to be £6 lower next November for a typical dual-fuel bill, than predicted last November .

The energy industry has consistently disputed the accuracy of Ofgem’s figures since it started publishing them in 2009, accusing the regulator of being misleading and overstating the industry’s profitability.

Lawrence Slade, chief executive of the trade body Energy UK, said the figures had “proven to be unreliable”.

“[Ofgem] takes no account of what energy companies have to pay out in financing costs, interest or tax but gives the misleading impression that there are massive profits to be made,” he said.

The recent gas price cuts announced by EDF, British Gas, Npower, SSE, E.On and Scottish Power have varied from 1.3% to 5.1%.

Electricity tariffs have so far been left unchanged.

BBC Reports

Rhys Boven
Rhys Boven
Rhys Boven is the Managing Director at leading energy brokers Switched On Energy. Most people have no idea if they are paying the correct amount or are on competitive terms, Rhys uses his expertise in the industry to help his customers make more money, save time, have less stress and peace of mind. Connect with Rhys Boven on LinkedIn >>

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