The voice of the energy industry

Customers need clear explanations of profit, says Energy UK

Basing decisions which affect millions of energy customers on fluctuating and incomplete estimates, risks creating a bad deal for customers, Energy UK chief executive Angela Knight said today.

Mrs Knight said the huge gap between the regulator’s estimates of what the suppliers earn from selling energy and the actual figures, raises big questions about Ofgem’s Supply Market Indicators (SMIs).

At the start of 2013, Ofgem estimated that the pre-tax margin would increase to £120 per customer. Analysis shows energy suppliers’ pre-tax and pre–interest profits actually fell to 4 per cent in 2013 - an average pre-tax profit of £1 a week for electricity and gas for each customer. This is less than half the Ofgem SMI estimate. The actual audited figures have now been provided to Ofgem.

Angela Knight, Chief Executive of Energy UK said:

“It cannot be right to publish numbers and estimates which imply profits which turn out not to exist. Customers are concerned enough about their bills. What we need is an honest discussion on energy, what it costs and how it is paid for. Using estimates that are as inaccurate as these, and which often result in misconceptions and misunderstandings, gets us nowhere.

“Energy UK’s new analysis uses the facts and we call on everyone to do the same. Our figures are intended to put the make-up customers’ energy bills on a more rigorous footing. At a time when massive investment is required to change how the UK generates electricity to meet the UK’s climate change targets companies have to make a fair profit and customers need to know what they are paying for.

“We all need clear explanations and this should include common definitions of the terms we use particularly when talking about profit, that is left after all costs, investment and taxes which have been paid. The SMIs are not reliable, are being used in a way that is misleading and must be reformed.”

Notes to editors

1.    The Supply Market Indicators (SMIs) published by Ofgem provides an estimate of earnings before interest is paid on the investment made and before tax.
2.    As a part of the industry’s commitment to openness and transparency, each company publishes their Consolidated Segmental Statement (CSS). This provides a summary of the company’s financial performance. Ofgem has acknowledged these are a better indicator of earnings before interest and tax than their SMIs because they are based on actual historical data.
3.    In the statements “revenue” means gross income to the supply and any costs of operation are deducted. Earnings before interest and tax (EBIT) is a pre-profit figure as it represents the revenue less the costs, but before interest is paid on the investment that the company has made for tax.

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