Big six energy firms accused of understating profits

The big six have been accused of “hiding” their profit margins to head off intervention in the energy market.

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Energy suppliers are making handsome margins of up 24 per cent on standard variable tariffs, a leading newspaper has claimed. The figure is more than seven times the 3.3 per cent profit margin which the CMA concluded the big six were making from an average customer, following a two-year investigation into the energy market which ended in June.

The allegations are based on estimates of suppliers’ costs outlined in a report by PwC for the trade body Energy UK, which was obtained by the newspaper. The report puts the cost of supplying power and gas to a typical duel fuel customer (using 3,100kWh of electricity and 12,500 kWh of gas) in 2016/17 at £844 excluding VAT (£42).

Npower would charge such a customer £1,172 if they were on a standard variable tariff, the newspaper said, leaving it with a profit of £272. On this basis, the margin would be more than seven times the CMA’s figure of 3.3 per cent which equates to a profit of around £36.

Using the same calculation, the newspaper said Scottish Power would make a profit of £262, SSE would make £249, EDF £241, Eon £229 and British Gas £206. The average figure for all six is £243.

Business and energy secretary Greg Clark reportedly told the paper he would summon Energy UK to a meeting to look into the matter: “This report appears to confirm my concern that the big energy firms are punishing their customers’ loyalty rather than respecting it.

“Customers who are loyal to their energy supplier should be treated well, not taken for a ride. They must treat customers properly – or be made to.”

Responding to the allegations, Energy UK said: “This Murdoch led newspaper article is very misleading on profits being made from consumers on standard variable tariffs…

“The numbers presented in the PwC report and on the Energy UK website represent averages across all tariff types. It is not possible to use this data to calculate, accurately, supplier margins on either the most expensive tariff or the cheapest tariff.  The cost of buying energy for standard variable tariffs will be higher than for a fixed term deal where you know more about usage and volume so can buy specifically for them. None of this is reflected in the article in the Sun.

“Energy UK rejects completely any implication that the report was designed to alter the perception of supplier profit. It is simply a way of demonstrating how pressures on energy bills have changed over recent years.”

The trade body added that the report is a draft, is not secret as the newspaper claimed, and that the final version is available on its website. The Department for Business, Energy and Industrial Strategy has yet to respond to a request for comment.