29th July 2013
MPs have slammed Britain’s energy watchdog for being toothless and “failing consumers” by not ensuring better transparency in regards to company profits.
A report from the Energy and Climate Change Committee said that Ofgem, which regulates the electricity and gas markets in the UK, is not taking all possible steps to improve openness and increase competition in the energy market, the report concludes.
Sir Robert Smith MP said: “At a time when many people are struggling with the rising costs of energy, consumers need reassurance that the profits being made by the Big Six are not excessive.
“Unfortunately, the complex vertically-integrated structure of these companies means that working out exactly how their profits are made requires forensic accountants. Ofgem should shine a brighter light on the internal structure of these big companies.”
The six largest energy companies; E.On, SSE, British Gas, Npower, EDF and Scottish Power are complex with several different arms – generating, trading and supplying energy – that sometimes sell energy and services to other parts of the same company.
When reporting their overall profits they include all these different business arms making it difficult to determine the precise profits of the energy supply side of the business and how this impacts upon energy prices. Greater transparency is urgently needed to reassure consumers that high energy prices are not fuelling excessive profits, according to the MPs.
The committee’s report; Energy Prices, Profits and Poverty, went on to say that Ofgem needs to use its teeth a bit more and force the energy companies to do everything they can to prove that they are squeaky clean when it comes to making and reporting their profits.
The group also reprimanded the Government for not doing enough to help “the millions of low-income families living in poorly insulated homes, struggling in fuel poverty”.
Smith added: “Fuel poverty is getting worse as energy prices rise making it all the more critical that the Government must respond to the Hills Review as a matter of urgency. Tax-funded public spending is a less regressive mechanism than levies on energy bills, which can hit some of the poorest hardest. Shifting the emphasis from levies to taxation would help protect vulnerable households.”
Responding to the criticism, Ofgem’s Rachel Fletcher says: “We agree with the committee that suppliers have been poor at communicating with their customers. That is why Ofgem has taken the lead in pursuing transparency across all sections of the energy market. Ofgem has made energy companies produce yearly financial statements, which have been reviewed twice by independent accountants and found to be fit for purpose.
“On the retail side Ofgem is pursuing reforms which will empower consumers by providing much clearer information about energy, making tariffs simpler and ensuring that consumers receive fair treatment from suppliers. On the wholesale market Ofgem is proposing to force firms to publish prices two years in advance. This is all part of our drive to increase competition and make the energy market work for consumers.”
Gillian Guy, chief executive of national charity Citizens Advice, adds: “Without a comprehensive fuel poverty strategy, increasing transparency will not be enough to solve the 91,000 fuel debt problems which Citizens Advice Bureaux handled in the past year.
“It is infuriating for struggling consumers to see announcements of record-breaking profits as they struggle to meet ever-higher energy bills, but pinning all our hopes on increased transparency is simply not enough to help the millions of people who are forced to cut back on essential spending or run up debts in order to meet the cost of their energy bills.
“If this is to change then suppliers must do all they can to keep prices as low as possible, alongside increasing transparency and simplifying tariffs.”
In May, British Gas declared that because of the unusual period of extended cold weather, the average residential gas consumption was 18 per cent higher in the first four months of 2013 than in the same period in 2012 and residential electricity consumption was some 3 per cent higher. In 2012, the firm faced a barrage of criticism for upping its electricity and gas tariffs by 6 per cent or £80, taking its average household bill to £1,340 a year. It subsequently reported an 11 per cent year-on-year increase in profits for its residential arm.
But the firm’s parent company Centrica, at the time said: “Recognising the economic pressures facing many of our customers, the board has determined that any benefit arising from the exceptionally cold weather will be used to maintain our price competitiveness. As a result of this decision, we expect the residential energy supply business to deliver an operating profit for the full year in line with expectations, weighted towards the first half.”