Energy Price Hikes See Firms' Profits Soar

Energy Prices

First Posted: 14/10/11 10:07 Updated: 13/12/11 10:12   PA

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 has emerged.

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.

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.

The 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.

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Filed by Jacqueline Head  |