Energy suppliers are under pressure to prove that they don’t make big profits from our energy bills. With record levels of dividends distributed to shareholders, while fuel poverty is on the rise, we’d like to shed some light on the topic.
The Big Six energy suppliers use lots of tricks to hide profits, for example, including corporate tax in their profit calculation to get to a lower profit figure. Or blaming the cost of environmental compliance for lower profits. We all know about creative accounting and how profits can be manipulated by recording various compliance provisions.
The energy regulator, OFGEM, recently published their analysis of energy prices for an average dual fuel customer since 2007 showing that wholesale prices were about £580 per customer per year in 2006 and are slightly higher than £600 per customer per year today, while consumer bills skyrocketed from £800 to £1,400 per customer per year or almost double the dual fuel rate seven years ago.
To be fair, energy suppliers do incur costs associated with environmental compliance, for example, the cost of meeting Carbon Emission Reduction Target (CERT) and Community Energy Savings Programme (CESP) targets. But, the energy suppliers did not meet the CERT targets that was set in 2009 and ended last year. As of the last measurement date – June 2012 – energy companies had met only 31% of the target set by the Department of Energy and Climate Change (DECC). Clearly, the regulator will have its hands full reviewing the reports prepared by the Big Six. The question for the consumer is – how much of the costs that were included in our bills have actually been spent? How much of our energy bill is still sitting in their bank accounts? If a penalty is assessed, it might be counterproductive, since that money is coming directly from the consumer.
In their January 2012 report, OFGEM disclosed that energy suppliers had increased their profit margins by 2% from 2008 to 8%. Wholesale prices really haven’t moved much since, although average prices have increased by more than 8%. In addition, the Feed in tariff (another environmental obligation) has been reduced radically as well as the Renewables Obligation, instigating great uncertainty for the renewable energy investment community and putting a big stop on the renewable energy generation that more than doubled as a result of the policy.
So why are energy costs increasing year on year? The information supplied by the energy regulator contradicts the annual excuse that energy supplier give us for rising prices. Trust in the Big Six is at an all time low. This is understandable considering the lack of transparency in the charges that we pay.
That’s why we started BHESCo – to bring transparency and service back to the customer. Join us today www.bhesco.co.uk