Energy firms’ profits soar on back of price rises

RECENT price hikes have increased the profit margins enjoyed by Britain’s big energy firms to £125 per customer a year from £15 in June, it emerged today.

Industry regulator Ofgem said that as a result of the rises the average dual-fuel bill has increased by £175 and by November will amount to £1,345.

The regulator said it expects profit margins to fall back next year, but said the market is still being stifled by complex tariffs, poor behaviour by suppliers and a lack of transparency in the market.

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It intends to push ahead with reforms of the market, the first of which will be the introduction of a simplified standard tariff, based on a simple unit price for energy used and a standing charge, which Ofgem will set.

Ofgem said wholesale prices had risen by 40% to £115 per customer over the past year and could go even higher over the next few months. Rising wholesale prices have been cited by suppliers for the recent spate of tariff hikes.

Today’s bill changes form part of a series of measures due to be unveiled by Ofgem in the next few months, including reforms of the business user market.

Measures designed to encourage easier access to the wholesale market will be published in December and proposals on how to make energy company accounts more transparent will follow in the new year.

Ofgem said the simpler bills would allow consumers to compare the differences between a standard energy supply contract and more complex deals. Customers who choose the more complex deals will also get protection against price increases for the duration of a contract, the regulator added.

Ofgem chief executive Alistair Buchanan said it had decided that a “radical break” with the past was needed.

“When consumers face energy bills at around £1,345, they must have complete confidence that this price is set by companies competing in a fully-competitive market. At the moment that is not he case”, he said.

Suppliers have already started to move to address some of the regulator’s concerns.

Earlier this week, Scottish & Southern Electricity announced plans to sell all of the electricity it generates on the open market, compared with the regulator’s proposals that 20% of all supplies must be auctioned by 2013.

Consumer groups welcomed Ofgem’s drive to simplify bills, though Consumer Focus chief executive Mike O’Connor said he awaited the response of the energy suppliers.

“Consumers are faced with a thicket of energy tariffs that can seem designed to confuse all but the most persistent and numerate consumers. More than 60 new tariffs have appeared so far this year, despite all the pressure for fewer and simpler tariffs,” he said.

Which? executive director Richard Lloyd said: “This will help remove some of the complexity and confusion in the energy market that infuriates consumers. We think a simple format should be applied across all tariffs, so that people can compare the full range of energy deals at a glance.”

Rising utility bills helped push consumer price inflation up to 4.5% in August and are forecast to send it close to, or even above, 5% as all of the recently-announced increases come into effect

Scottish Power was the first of the major groups to raise prices when it put gas tariffs up by 19% and its electricity charges by 10% from August 1.

nlyp-141011 web Market leader British Gas increased gas bills by 18% and electricity by 16% in August, while in September Scottish and Southern Energy raised electricity by 11% and gas by 18%, along with E.ON, which increased its electricity prices by 11.4% and gas by 18.1%.

Npower raised gas prices by 15.7% and electricity by 7.2% from October 1, while price rises of 15.4% for gas and 4.5% for electricity come into effect for EDF customers on November 10.

Shadow energy secretary Caroline Flint said: “People will be shocked, if not surprised, that, at a time when millions of families are struggling with their energy bills, utility companies are enjoying soaring profits.

“With forecasts of a bitter winter looming, it’s more important than ever that families are not being ripped off.

“The Government has to get a grip on energy bills. It’s not good enough to tell people to shop around. We need fundamental reform of the energy market, to break the stranglehold of the big six, allowing new entrants, increasing competition and driving down energy bills for families.”