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Energy crackdown as Big Six profit margins rise 700%

Recent price rises have boosted energy giants’ margins by around £125 a year per person, Ofgem reveals as it unveils plans for 'radical reform'.

 

by Victoria Bischoff on Oct 14, 2011 at 10:17

Recent price rises have boosted energy giants’ margins by around £125 a year per person, Ofgem revealed today as it warned suppliers of imminent plans to radically reform the market.

The average dual fuel – gas and electricity – bill now stands at £1,345, and suppliers’ margins have peaked at around £125 a year, the energy regulator said. This is the highest they have been since August 2004.

The news comes just weeks after all of the Big Six energy companies announced double-digit price rises for millions of customers. Ofgem said, however, that margins are likely to fall back next year.

Scott Byrom, energy manager at MoneySupermarket.com, said: 'In just five months the profit margins for energy companies has risen from £15 per customer in June, to a staggering £125 per customer, per year – an increase of over 700%'.

'The rise in bills is supposed to be directly linked to wholesale prices so consumers will be angered that profits have risen when this shouldn’t have been the case,' he added.

Typical dual fuel customer bill, costs and net margin (source: Ofgem)

Scottish and Southern Energy (SSE.L) however said that it does not in any way recognise Ofgem's 'snapshot estimate'.

'The approach adopted by Ofgem in calculating this figure is entirely theoretical and does not reflect how a responsible energy supply business manages its energy procurement strategy in reality,' SSE said. 'This is demonstrated in the way Ofgem's net margin estimate has varied so much during the last 12 months'.

SSE said it reported a profit of just £62 per dual fuel customer, and claimed it does not expect this margin to change significantly for the current financial year.

The news came as Centrica (CNA.L), parent of British Gas, joined the Citywire Top Stocks hall of fame, based on the recent resilience of its share price which in turn reflects the hugely cash generative nature of its business.

Lack of transparency

Ofgem claimed its latest investigation does nothing to alter its previous findings that competition is being stifled by a combination of tariff complexity, poor supplier behaviour and lack of transparency.

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36 comments so far. Why not have your say?

Adam Eve

Oct 14, 2011 at 11:52

What did one expect when they (the government) allowed the sell off of OUR energy companies?

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Lost my marbles

Oct 14, 2011 at 12:15

Disingenuous calculations by ofgem me thinks.A bit of rabble rousing to encourage the populace to boo the pantomime villains.

No I don't work for any of these energy companies!

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Alan Tonks

Oct 14, 2011 at 12:17

What do you expect when offgem is paid and does nothing, in fact it wouldn't surprise me if their salaries come from the foul energy leeches?

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Alan Tonks

Oct 14, 2011 at 12:24

If you believe that you have truly lost your marbles. I also believe people who have stupid names on a serious subject, have a screw loose anyway.

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Adam Eve

Oct 14, 2011 at 12:34

AND WHAT is a matter with MY name (and my cousin Trevor's) ?

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Anonymous 1 needed this 'off the record'

Oct 14, 2011 at 12:35

all efficiency savings obviously just end up in the piggies trough.

re-nationalisation will do the trick

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John Robinson

Oct 14, 2011 at 12:38

More Journalist garbage.

The energy companies are being jumped on for raising their profits from 1.2%.

Stupid headline grabbing rhetoric inventing a problem that doesn't exist.

Could anyone continue to run a healthy company on 1.2% profit level - I don't think so.

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David Harvey

Oct 14, 2011 at 12:42

You make a good point Adam Eve. The implications of the ongoing privatisation especially in health and social care will have cost implications in the future. The price of power must be having a serious impact in industry growth and is an example of one industry choking others.

We always believe that we are paying too much when things are public. Just look around at the price of the private version a decade or two down the line.

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Adam Eve

Oct 14, 2011 at 12:54

"Could anyone continue to run a healthy company on 1.2% profit level - I don't think so."

NATIONAL WESTMINSTER (as was) , A personal conversation with their chairman at the time revealed that their FIRST BILLION pound profit in a year was achieved on less than a 2% margin....... SO YOU ARE WRONG!

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Tyrone Bell

Oct 14, 2011 at 12:57

They're all full of hot air.

(I wish I could afford for my house to be the same this winter!)

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richb

Oct 14, 2011 at 13:20

Re-nationalisation won't work as we will be paying for an uncompetitive behemoth through higher taxes. The problem is we don't have our own natural resources anymore so we're over a barrell (literally) from the middle east and russia. if the government invested more in nuclear power, wind farms & insisting new house builders provider alternative means of heating & lighting then we could stick two fingers up to these cartels.

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Dave Buchanan

Oct 14, 2011 at 13:45

I don't remember many supporters of British Rail or Post Office Telephones when they were nationalised.

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Rose G

Oct 14, 2011 at 14:04

Privatisation was not introduced to make prices more competitive - it was set up so a few people could make loads of money, based on the captive users of energy in the UK.

We will see how the privatisation of the health service affects the ordinary person when that comes into effect via the back door because the tories do not have the courage of their convictions to face the electorate & tell them the truth.

Not one of the privatised utilities has resulted in lower prices - as for Ofgem, Ofsted Oftheirfuckingheads, they have no wish to challenge the big companies who know they can charge what they like because no government is going to say no to the increased revenue for the treasury while making profits for those with sufficient disposable income to invest in these bloated with greed companies.

We are facing the most difficult times ahead and all because the feckless bankers & their bum chums in government can print any amount of money to reduce the power of the pound, which means more money in various taxes for the treasury, at the same time as ensuring that bankers retain their culture of paying themselves huge amounts of money for doing virtually f all!

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Lost my marbles

Oct 14, 2011 at 14:12

Alan Tonks,you are pathetic.

By the way,how is anyone with a name like Tonks able to have a go at 'stupid names'.

The fact remains that the figures used by Ofgem are disingenuous.Do some research and if you want someone to blame for rising energy bills ,have a look at the costs these companies have had foisted on them due to the Government's green policies.

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David Harvey

Oct 14, 2011 at 14:47

Thats true LMM. and most of the green tech is next to useless. All imposed by Europe's ideals. We can't use nuclear power stations because they would become a target for terrorists that we no longer have a military to defend. Of course we could get Camerons big society to do it with some sort of dads army. If we spent as much on getting atomic fusion to work as we do poking our noses into everyone else's business we wouldn't have a power problem.

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John Robinson

Oct 14, 2011 at 14:51

Rose G has a short memory - pre-privatisation we all paid through the nose for poor service from the energy providers as well as British Post Office Telephones as well as British Rail. If you lived through that era you would remember how bad it was. And the net effect of privatisation - to drag these sick companies into the 21st century, provide more reliable services and relieve the tax payer of never ending subsidies.

Unfortunately that was 30 years ago and some of us especially those who didn't experience the pain seem to think we can go back to that.

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Keith Snell

Oct 14, 2011 at 15:44

If the substance of your headline is correct then clearly it is time for the regulator to act to curb excessive price rises, however anyone who believes that

re-nationalisation is the answer either has no experience of working for nationalised organisations or has no record of how badly managed and excessivly costly they were.

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David Harvey

Oct 14, 2011 at 17:01

I am sure re-nationalisation is not the answer, but, I do think that there are lessons to be learned. Services such that support our lives too easily become a tool to rip us off. During times like this the ombudsmen seem of little use. It seems to me that when private companies get into a huddle they are able to do as they please regardless of the effect on the desperately needed growth and the poor and elderly. I remember Mr Scargill and the power cuts, 3 day weeks ( I bet they wish they hadn't filled the coal mines with concrete now!!!). In fact I have heard people who were part of a jobs for life company trumpeting advice to young people these days about how they prepared for their old age, ha, try it now! There is an argument that says you either pay tax for a national company or prices for a private one. The issue I have with private companies is their timing for pulling these stunts.

When these groups of companies get so big they do need to be dealt with.

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briman

Oct 14, 2011 at 17:06

Ofgem claim they are unable to regulate energy prices , that is not their brief. What we have lost is a competitive market. Re Nationalisation would not provide that competition.

Consumers have little choice when energy suppliers predictably follow each other with orchestrated price increases. There is little point in changing supplier if market pricing is fixed by a cartel of suppliers with little or no difference between the cartel members.

Since privatisation the market has been allowed to establish a hold over the consumer which needs to be broken possibly by

Greater transparency in pricing to the public.

More provision for new entrants into the market

Possibly a severing of the connect between generation and sale direct to the consumer, with more energy sold at auction by the generator to those suppliers to the public.

It is not privatisation that has failed but Goverment that has failed to maintain the competive market introduced by privatisation.

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Peter Paddon

Oct 14, 2011 at 17:21

John Robinson. Err exactly how have former nationalised companies customer service improved?

I guess you don't have to wait for six months to have a phone installed, and you aren't limited to any colour you want as long as it is black, but would anyone hold up current BT has a paragon of customer service?

Trains are a bit cleaner than they used to be but you used to be able to turn up and get a seat. Nowadays it seems you only get a seat if you pre-book your journey; that's if you can afford a ticket in the first place (talking long distance e.g. Manchester - London) . Are they any more frequent, reliable, or have better facilities? I don't think so.

Is the service from power companies any better than the old Boards? These days you have to read your own meter, pay through the nose to phone their call centre and set aside, maybe 30 minutes on occasion, for them to answer the phone.

It seems to me that service hasn't improved, the costs have got higher and a load of company senior managers get well paid to hide profits.

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David Harvey

Oct 14, 2011 at 19:13

None of the services have truly improved. And many are cashing in on the green issues, They tell you that you can save money by being "sensible" and using less, so, we do. Then what happens is they put the unit cost up to compensate for profit loss! great!! same money, half the unit sales. Water, power, transport they have all become unaffordable and service from them is appalling . The old services were run down it is true trains were grubby, but I bet some travellers today would happily tolerate that just to have it at an affordable price or just to have it AT ALL.

There are so many issues outside of the price of power that need to be controlled the idea that greed is self regulating seems a silly idea especially when the already huge companies start huddling together.

Actually maybe a "form" of nationalisation might be what we need after all? How could it be done though without the unions then going over the top?

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richard allan

Oct 14, 2011 at 19:39

Regulator is a complete misnomer. toothless commentator is nearer the mark. regulation in the water industry is a completely different story. Here the regulator fixes the prices the utilities may charge consumers for a 5 year period. The calculation takes into account capex etc. Why we cannot have the same system for gas and electricity beats me.

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Anonymous 1 needed this 'off the record'

Oct 14, 2011 at 19:48

I just love these any-thing-other-than-as-it-already-is-wouldnt-work arguments.

so were all doomed to be financially raped by the private monopoly's/cartels that have been gifted the licenses to print money at the expense of the public? Just put up and shut up?

And not only that take the p1ss and rub society's nose in it at a time when the majority are finding it hard to make ends meet. Merely saying "we're all in this together" simply wont cut it.

Well guess what? The public wont put up with this ad-infinitum

crownie/cry baby/bail me out/prop up my assests/inflate away my debt/Buy our political system/Extreme greed/Heads we win - Tails you lose - capitalism is breaking down at an alarming rate. Only those with their snouts jammed hard into the trough are blind or completely detached to what is going on.

Keep things "as is", that is inequality and poverty for the majority growing at break neck speed. After all capitalism will indeed eat itself spurred on by its own extreme greed, self interest and corruption.

Power cuts? You aint seen nothing yet. With youth unemployment at a record high of 991,000 and growing, the middle classes being systematically shafted from every angle and opportunity ebbing away for many being replaced with years of debt and tax slavery and lack of opportunity.

Make way for anarchy. The can kickers are running out road.

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Dennis .

Oct 14, 2011 at 19:53

Victoria and most of the readers of this column obviously fail to understand that there is a big difference between margin and final profit . Most retailers operate on 100% margin but don't necessarily make a profit after costs and taxes are removed.

Must go upmarket and buy a copy of the Daily Mail.

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David Harvey

Oct 14, 2011 at 20:01

It is true Anonymous 1 that all the people let down by Cameron and his mini-me oppo, and there are a lot, all have a vote.

They really do need to get a grip of these big companies they are able to effect the country so seriously that they must.

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Val Scholes

Oct 16, 2011 at 10:16

£125 a year per person... £125 a year per household?

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Allen Williams

Oct 16, 2011 at 13:30

Competition works to keep prices low in a perfectly competitive market. Gas and electricity is far from perfectly competitive so some form of effective regulation is justified and arguably required. Surplus profit is but one symptom of supplying companies abusing the system. There are others if you care to look. It is high time the government faced up to their duty in this respect.

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David Harvey

Oct 16, 2011 at 14:39

The problem is Allen, They won't! since taking power they have claimed to be making the "tough" decisions. Well, tough for who?? not the companies that need sorting out, not the banks, not the stock market parasites, oh no. The tough choices they speak of are the easy targets, the elderly, the infirm, the unemployed, the vulnerable and the poor. Oh and lets not forget the plumbers that one of the worse tax avoiders in the country is taking to task.

The huge companies that need control are being allowed to do as they please. The wolves are being told to take care of the sheep.

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Franco

Oct 16, 2011 at 14:52

We were trying to build a fairer society, but you decided to abandon it for a fully capitalist system based on greed, Margaret Thatcher, arch liar Tony Blair. and bankers's bonuses. Now please do not complain about being exploited, that is what you voted for and that is what you are getting.

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David Harvey

Oct 16, 2011 at 15:02

well, to say we voted for what we have at present is a bit of a stretch Franco. Not much better than saying we voted for Brown. Neither were 'really' elected by the people.

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Lost my marbles

Oct 17, 2011 at 10:04

Get real people,the charges we pay for gas and leccy are amongst the very lowest in Europe.

No not cheap and it never will be in our lifetimes,but less than most of our European counterparts pay.

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Dennis .

Oct 17, 2011 at 10:36

Why can't you financially illiterate people understand the difference between margin and profit?

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Anonymous 1 needed this 'off the record'

Oct 17, 2011 at 12:47

People fully understand the difference between being ripped off and fair charges that produce profits for the provider. Why dont just the plain illiterate understand that? It aint that complicated, shall we draw pictures?

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Rose G

Oct 17, 2011 at 13:02

I came to live in this country just when that first transvestite Thatcher had taken over & the only thing positive I could come up with was that she knew her handbag, because if memory serves me right, she did wave something like a hand/shopping bag about.

Since then, I trust very few tory politicians - she was a big one for war too as well as taking on the unions.

While I personally think that trade unions are just a different face of politics & are just as pig headed as politicians who refuse to face the truth (Tranny thatcher included - remember she had to be pushed because she would not jump!), we have seen one tranch after another of meaningless rhetoric, as they took more of our freedoms away, engaged in more wars as ever - Jeremy Paxman has written that far from the days of empire being over, we are still affected by it! The whole attitude of the rulers in Britain seem to have stagnated - they still believe they are world leaders (when it has become clear that they are nothing but robber barons pretending to care), they still believe that they are a great nation?

When devolution has come full circle, & the people in Scotland are having better quality of life than their counterparts in the south, when they finally have control of their finances, rather than be dictated to by the ponces at Westminster, when their house prices become stabilised so that their residents can actually afford a home, maybe little englanders at westminster will pay heed, but I doubt it.

Our politicians are not interested in how we cope with their policies, as long as they are remembered by history as having done a fantastic job, & hell may well freeze over before this happens, but this is how they operate at westminster. Little thought goes into long term benefits or policies, as long as the media report their current fantasies in large print on the front page, they care for little else! Their egos require that they see their names in print - i am not sure why they have not joined RADA - that would be a more suitable venue for their ambitions!

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red_dragon

Oct 17, 2011 at 20:51

Energy supply is straight out of the wild west, profiteering and price fixing among the big six is rife, time to get the real government of this isle to do something about the problem(EU) because what they are doing is corrupt and illegal under EU and British law.

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john_r

Oct 21, 2011 at 12:49

No we don't want any more influencefrom the EU.

Uk energy prices are much cheaper than than in most of Europe anyway.

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