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Energy firms warned over profits

Profit margins at five-year high for dual fuel

The energy watchdog has warned that suppliers may be forced to pass on the benefit of falling wholesale gas prices to their customers in the new year.

Ofgem’s quarterly report into the relationship between retail and wholesale energy prices revealed that energy companies’ profit margins on dual fuel (gas and electricity) bills were at a five-year high, and would continue to rise if customer prices remained unchanged, because wholesale gas prices look set to fall again in early 2010.

Alistair Buchanan, chief executive of Ofgem, said: ‘Ofgem’s role is to ensure that companies can invest, but do not use investment as a shameful excuse to overcharge consumers.’

Ofgem added that energy retail businesses have only just recovered from three to four years of ‘low or negative margins’.

Lower energy prices

Dr Fiona Cochrane, Which? energy policy advisor, said: ‘Despite what Mr Buchanan has said today, it is still impossible for consumers to be confident that they aren’t being ripped off. We’re calling for greater transparency over prices to convince people that energy prices are fair.’

Ofgem’s report also suggests that many customers could save around £200 a year by taking matters into their own hands and switching energy supplier and tariff, with fixed price and online offerings from energy companies such as First Utility and Ovo Energy injecting new competition into the sector.

Those switching with Which? Switch between 1 January and 21 October 2009 saved an annual average of £263. Which? Switch is the free and independent service from Which? that compares hundreds of gas and electricity prices and energy tariffs.

Energy network upgrades

Ofgem has also separately given the go-ahead for electricity bills to increase by £4.30 a year for the next five years to help fund upgrades to the network. It claimed the settlement was ‘tough on inefficiency and poor service but fair in allowing the companies to invest to replace ageing network assets’ and ‘a greener electricity supply’.

Dr Cochrane commented: ‘Yet again consumers end up paying for industry under-investment – why have our networks been allowed to get into such a state of disrepair? We’re disappointed that consumers will have to foot the bill.’

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