Ofgem Failing to Improve Transparency of the Big Six Profits in the UK

A lack of transparency about energy company profits is undermining trust in the UK energy market and Ofgem is not taking all the action necessary to tackle the issue and restore consumer confidence, MPs on the Energy and Climate Change Committee have warned in a new report. They want to see a competitive energy market with profitable companies able to invest in Britain’s future energy infrastructure.

On behalf of the Committee, Sir Robert Smith MP says: “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 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.

Ofgem is failing consumers by not taking all possible steps to improve openness and increase competition in the energy market, the report concludes. The MPs criticise the regulator for its relatively light touch approach and for not fully implementing the recommendations of the accountants it commissioned to improve how energy companies report their profits. Considering consumers’ lack of confidence in energy companies, the MPs argue, Ofgem should reconsider whether the transparency to be gained by implementing more of BDO’s recommendations outweighs the costs involved.

The report also reprimands the Government for not doing enough to help the millions of low-income families living in poorly insulated homes, struggling in ‘fuel poverty’. Spending on the problem has been cut inEnglandand some of the Government’s fuel poverty programmes appear to be in hiatus. The use of levies on bills to fund social and environmental programmes will add to the burden faced by energy bill payers. The MPs argue that to help protect the most vulnerable more programmes should be funded through direct taxation rather than levies.

Ofgem’s Senior Partner for Markets Rachel Fletcher says: “Ofgem welcomes the publication of the Select Committee’s report on energy prices, profits and poverty. We will consider and respond to its findings as part of our ongoing work to ensure that companies’ statements are clear and accurate. We share the committee’s goal of restoring consumers’ trust. This aim underpins our reforms which seek to get energy companies to deal with consumers in a simple, clear and fair way.”

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