Ofgem to force ‘transparent’ reporting of energy company profits

Energy regulator Ofgem has caved into demands by MPs that it should force energy companies to be more transparent in reporting profits – less than six months after dismissing such a move as “intrusive.”

In its response to a July report by the cross-party energy and climate change (ECC) select committee Ofgem said: “Given the committee’s recommendations and continuing consumer concerns about profit levels we intend to revisit this issue. We plan to consult later this month on how best to build confidence in the market through greater transparency around revenues, costs and profits.”  The watchdog said that it remained “not persuaded” by the case for forcing greater transparency out of the energy firms and warned that the costs of doing so “will be born ultimately by consumers in higher bills.”

The Ofgem response came only days after energy company SSE unveiled an 8 per cent hike in its prices which followed the Opposition Labour Party’s pledge to freeze retail prices should it gain power after the next General Election.

Giving evidence to the ECC committee in May, interim Ofgem chief exectutive (at that time, head of markets) Andrew Wright said “There’s no reason to expect the companies are not giving a fair picture of their profits or that profits are being taken out into trading businesses.”  

He said forcing the companies to provide a fuller picture of their profits would be “intrusive in terms of requiring companies to do a lot of analysis”.

The latest figures published, under Ofgem rules, by the six largest energy supply companies – so-called Segmental  Statements – showed that their average profit before tax and interest in 2012 was just under 3.3 per cent ranging from a 1.3 per cent loss to a 6.6 per cent profit.

In its July report the ECC committee said the “complex vertically integrated structure of these companies means that working out exactly how their profits are made requires forensic accountants.”

In its response to the committee report the department of energy and climate change said: “Given the centrality of this issue to trust in the whole industry, we very much support the further work Ofgem is planning to do to see if it can improve transparency in this area.”