Concern as profits of energy firms to increase

Picture: David Cheskin/PA Wire
Picture: David Cheskin/PA Wire
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ENERGY COMPANIES stand to increase their profits to £114 per household over the next year, even after cutting tariffs in response to dramatic falls in wholesale prices.

Ofgem’s latest supply market indicator (SMI) suggests firms will make a £114 pre-tax margin per household over the year – up £9 on its November update and nine per cent of the average dual-fuel bill, driven by “significant declines in expected future wholesale costs”.

The regulator said it had taken the price cuts announced by all the major suppliers in recent weeks into account before releasing the latest figures, as well as the introduction of a number of cheaper fixed tariffs to the market.

It said: “Our estimate of the pre-tax margin a typical large supplier could make over the next 12 months, based on a 13-month rolling average margin, is £114. This is up £9 from the November 2014 update. The rise in the rolling margin is driven by significant declines in expected future wholesale costs.”

E.ON, British Gas, Scottish Power, npower, SSE and EDF have all announced cuts to their gas prices in recent weeks of between 5.1 per cent and 1.3 per cent.

The scale of the cuts have been criticised by consumer groups.

All have fallen well short of industry estimates, suggesting bills could be reduced by £136 a year if suppliers pass on the full drop in wholesale prices.

On Tuesday, Ofgem chief executive Dermot Nolan told the Energy and Climate Change Committee that he was predicting increased margins for energy companies, adding that this was “clearly cause for concern”.

Energy Secretary Ed Davey said: “People want to see bigger savings on their energy bills – not bigger profits going to the Big Six.

“The big energy companies are facing record competition thanks to our reforms and their customers aren’t going to stick around if they’re not getting a fair deal. There’s never been a better time to switch supplier and save.”

Shadow energy secretary Caroline Flint and Don Valley MP said: “These figures show that the profits of the big energy companies are set to soar on the back of big reductions in wholesale costs and tiny cuts to household bills.”

Citizens Advice said the recent price cuts were “clearly inadequate”.

The charity’s chief executive, Gillian Guy, said: “The inadequacy of recent energy price cuts is now clear. Low wholesale costs are allowing energy companies to increase profits whilst barely cutting energy prices.