Centrica profits ride high while Npower languishes

Ofgem data shows aggregate big six profit margins at record high

Centrica’s pre-tax profit margin for domestic energy supply sat at 7.18 per cent in 2016, new data from Ofgem has revealed.

The regulator’s complete annual data for energy company profit margins showed the British Gas owner recorded the highest profit margin among the big six in 2016, making it the most profitable large supplier for the second year in a row, despite a 0.38 per cent margin reduction compared to 2015.

Ofgem’s data also showed that the aggregate profit margin across all of the UK’s largest energy suppliers rose to a record high of 4.48 per cent in 2016, with Eon, Scottish Power and SSE all exceeding this average.

SSE saw an increase in the size of its margin for the third year in a row while Eon achieved the biggest positive step change in margin compared to last year. In 2016 its pre-tax margin rose to 6.95 per cent compared to 4.52 per cent in 2015.

Meanwhile, Npower and EDF reported losses of 6.26 per cent and 0.87 per cent respectively. In an interview with Utility Week, Beatrice Bigois, head of EDF Energy’s UK retail business, said that the supplier is hopeful of recording a “very small” profit in 2017, for this first time in around 10 years.

She also said that suppliers “must accept” that the two-year Competition and Markets Authority investigation into energy market failures had not closed the public debate around the cost of energy, as many industry figures had hoped. She adocated “constructive” engagement with ongoing reviews to investigate energy costs.

News of Centrica’s strong positive margin is likely to spark new controversy over domestic energy bills. It comes just weeks after the supplier announced a 12.5 per cent increase to the cost of electricity for customers on its standard variable tariff, claiming that rsing network and policy costs could not be absorbed by the company.

At the time, Centrica chief executive Iain Conn said: “We have been selling electricity at a loss, due to transmission and distribution costs associated with feed in tariffs, renewable energy, and the smart meter roll out programme alongside the Data and Communications Centre.”

Ofgem is currently in the process of consulting on a partial market price cap for energy suppliers to protect vulnerable consumers from rising bills, but political pressure for more aggressive intervention is mounting. In August, more than 50 MPs, including 20 former ministers, wrote to the prime minister to demand that she honour a manifesto pledge to control the amount that suppliers can charge for domestic energy supply.