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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.
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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