Energy regulator Ofgem has been branded “ridiculous” by MPs after its new boss ruled out forcing energy companies to be more transparent about their profits, claiming it would be “expensive and intrusive” to implement such legislation.
As SSE becomes the latest of the big six energy suppliers to announce a major increase in retail operating profits – rising by 27.5% to stand at £410 million – many have called for energy companies to produce crystal clear breakdowns of their finances to see exactly where the company is making its biggest margins.
The average energy bill in the UK now stands at more than £1,400 a year, which has pushed many consumers into fuel poverty – a situation that occurs when people spend more than 10% of their income on heating and powering the home.
To help curb this rise, MPs have demanded that energy companies be required to publish transparent account information that shows the public exactly why they are able to post such significant profits and, where necessary, detail how these profits are being used – whether it be reinvested into the UK economy or otherwise.
Tim Yeo, chair of the Energy and Climate Change Select Committee, has called on the incoming Ofgem chief executive Andrew Wright to push through regulations that would provide customers with greater understanding of why they are being charged so much for their energy bills and to what extent the big six and other energy suppliers are profiting from this.
Such rules would help to restore public confidence in utility providers and also prevent any company hiding behinds its balance sheet, the committee suggests.
However, Mr Wright claims that such a move is unnecessary, and that energy companies should be trusted to lay all their cards on the table when publishing their profit statements.
Intrusive and ‘tokenistic’
“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 [offshore] trading businesses,” the Telegraph reports him as saying.
While admitting that the energy regulator may be missing pieces of information, Mr Wright said the mechanics of implementing the legislation would not only be intrusive in terms of requiring suppliers to conduct analysis, but also complicated to interpret, once the figures were published.
To conclude, the new Ofgem boss said that such legislation would be “tokenistic” and that the regulator had no way of preventing companies from arranging international business processes to maximise profits.
MPs have responded strongly to the claims, arguing that Ofgem’s stance is “ridiculous” and reiterating that it will do nothing to stem the number of consumers who are growing tired of energy companies’ promises while being simultaneously hit in the pocket.
Breakdown of confidence
Mr Yeo said there has been a “complete breakdown of consumer confidence in the trustworthiness and integrity” of energy providers and noted that the investigations into market manipulation and misselling have led to “considerable consumer suspicion” that the wool is being pulled over people’s eyes.
“Of course it may be complex to get to the bottom of it but it seems to me all the more reason for making a good effort. The scope for them to continue at least appearing to pull the wool over people’s eyes remains almost unchecked,” he said.
The independent auditor BDO has previously suggested that greater transparency regarding energy companies’ profits is required, while allegations of manipulation in the gas market have taken Ofgem more than eight months to investigate, with no impending resolution.
“There are genuine concerns about the way these companies can continue to conceal from public view their activities and the profits they generate from different parts of those activities. It is unsatisfactory,” Mr Yeo stated.
It is now in Ofgem’s hands to draw up legislation that would require the big six and other providers to provide greater clarity regarding how much they are making at the expense of consumers, but the regulator’s current stance indicates that such a move remains some way off.