Energy UK chief executive Angela Knight said in a statement that the huge gap between Ofgem’s estimates of what the suppliers earn from selling energy and the actual figures threatens the ability to have an honest discussion about energy bills and the profits made from them.
“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 an honest discussion on energy, what it costs and how it is paid for,” Knight said.
Ofgem produces a monthly Supply Market Indicator (SMI) estimating the pre-tax profit margin of a typical energy supply company, but the model has been criticized by industry as being unrealistic and out of step with market realities.
In a blog for Utility Week earlier this month, SSE’s managing director of the company’s retail business said the ‘snapshot’ approach that Ofgem takes does not show the whole picture.
He added that the sector’s “trust problem” is not helped by estaimtes that are “detached from actual profits”.
At the start of 2013, Ofgem estimated that the pre-tax margin would increase to £120 per customer while Energy UK says its independent analysis shows energy suppliers’ pre-tax and pre–interest profits actually fell to 4 per cent in 2013.
“Using estimates that are as inaccurate as these, and which often result in misconceptions and misunderstandings, gets us nowhere,” Knight said.
“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.”