It was recently revealed that profit margins for energy companies have increased to £125 per customer each year. June saw profit margins of £15 per customer. The number measures the amount they would make if bills and prices remained unchanged for the year.
Ofgem, the regulator, has anticipated that margins will decrease to £90 per customer next year. In addition, the company has said it will ensure suppliers simplify tariffs and deals in order to make comparison simple. Suppliers will be made to have offers with “no-frills”, meaning a standing charge and a unit charge for energy used. The standing charge would be fixed by Ofgem. The only number consumers would then need to compare would be the unit charge.
Complicated tariffs would be allowed, but for a fixed amount of time and with no price increases. Ofgem is to publish its regulation proposals next month and hopes to begin reform before winter of 2012. Currently, the average dual-fuel bill is £1,345 per year, as all of the major energy companies have increased prices.
British Gas, Scottish and Southern Energy, npower, E.on, EDF, and Scottish Power have all increased prices over the summer, causing already struggling families to face the potential of fuel poverty, defined as spending 10% or more of household budgets on energy bills.
According to Ofgem’s chief executive, Alistair Buchanan, “When consumers face energy bills at around £1,345, they must have complete confidence that this price is set by companies competing in a fully competitive market. At the moment that is not the case.”
Oftem is also attempting to reform the wholesale market, the reason suppliers have increased bills. All of the major suppliers cited the wholesale market as their reason for increasing their bills. Ofgem will publish proposals for this regulation in December. Larger suppliers do generate their own power, with little going to wholesale markets, as they sell it directly to consumers.
However, Scottish and Southern Energy announced this week that it plans to auction all of its power on the market. Among proposals, Ofgem has suggested that utility companies should auction 20% of their energy by 2013.