Page last updated at 17:50 GMT, Monday, 22 February 2010

Gas and electricity firms' profit margins rise

Gas rings
British Gas has recently cut its gas prices

Energy firms are under more pressure to cut domestic prices after a report suggested their profit margins were up.

Energy regulator Ofgem found that the average net margin for supplying the average gas and electricity customer was £105 a year in February.

This was up from £75 a year in November, and prompted calls for firms to follow British Gas by cutting their gas prices.

The industry has produced its own figures claiming lower profits.

Energy UK, which represents the energy companies, said that the latest statistics came after a period of slim profits and occasional losses.

Wholesale costs

The energy suppliers have faced questions about prices when wholesale costs have been in decline.

Gas prices graph

Ofgem's quarterly market report found that - as a direct result - the net margin for supplying customers has grown.

It has not swelled as much as was forecast, because British Gas recently cut gas prices by an average of 7% - or £55 - on a typical household bill. None other of the major energy suppliers have followed suit.

Ofgem said customers could help themselves to save money by switching suppliers. This could cut the average bill by £100 a year - or more if people switched to an online or non-standard deal.

But it was still unhappy with how certain groups of consumers were being treated.

"Ofgem continues to have concerns about whether the retail energy supply market is yet working enough in the interests of all consumers," the report said.

Price cuts?

Watchdog Consumer Focus said the latest statistics should provide the evidence for more companies to reduce domestic prices.

[Profits] came after three years in which the companies were earning close to nothing from supplying dual fuel customers
Christine McGourty, Energy UK

"At a time when householders are worried about their winter energy bills, they will no doubt wonder why margins have increased for the fifth quarter in a row, while wholesale costs continue to fall," said chief executive Mike O'Connor.

"The answer seems to be depressingly simple - energy companies are pushing up their profits by cashing in on the cold spell."

Yet, there has been a strong riposte from the industry, which quoted figures from energy consultancy, NERA. These showed that profit margins stood at £31 per customer - not £105 - and this was even before the British Gas price reduction.

NERA said these calculations more closely reflected the costs of supplying energy to consumers, by including a variety of additional costs that Ofgem had not previously included in its calculations - such as the cost of offering certain discounted tariffs.


This has also come after energy companies took on some of the cost of high wholesale costs of 2008, said Christine McGourty, director of Energy UK, which represents the biggest gas and electricity companies.

"[Profits] came after three years in which the companies were earning close to nothing from supplying dual fuel customers," she said.

"Ofgem said that profits were at a five-year high at the end of 2009, but NERA's analysis puts that into perspective, demonstrating that they only appear high by comparison with the very slim profits and sometimes losses of recent years."

Despite the dispute about exactly how much profit per customer the energy companies are making, Energy and Climate Change Secretary Ed Miliband wants prices to come down.

"We need to see all suppliers passing on the full benefits of lower wholesale prices. Householders facing high winter fuel bills deserve to see the benefits as soon as possible," he said.

Simon Hughes, Liberal Democrat energy spokesman, said: "Cynical price cuts now will not disguise bumper profits made on the back of grossly unfair fuel bills.

"Energy firms should be forced to show how much profit they make on every pound they charge at the bottom of every fuel bill."

Recent changes in energy bills include limits on doorstep selling and outlawing price discrimination for those using prepayment meters.

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