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Thursday 29 June 2017
29 June 2017 - NEWS UPDATE
Business

MPs criticise Ofgem for failing to improve transparency of energy company profits

MPs have severely criticised Ofgem for failing to tackle the lack of transparency about energy company profits. At a time when many people are struggling with the rising costs of energy, consumers need reassurance that the profits being made by the Big Six are not excessive, say the Energy and Climate Change Committee in a new report.

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Fears of excessive profits

The complex structures that they work within means that working out exactly how their profits are made requires forensic accountants, and this hasn't happened.

"Ofgem should shine a brighter light on the internal structure of these big companies," says Committee member, Sir Robert Smith MP.

Juliet Davenport, CEO of Good Energy, the green electricity supplier, welcomed the report. saying: "MPs are right to pick up on the need for the regulator to shine a light on how our energy market is working, particularly at a time when consumers are worried about rising bills.

"Consumers should be able to see the impact of the rising costs of fossil fuels on their bills, and why we need to invest in new, renewable sources of energy to address that.

"We need to be asking our politicians not just why our bills our going up, but what they are going to do to ensure that the shift to using more renewable energy delivers a more open and a more transparent energy market."

The Committee's report says the confusion is undermining trust in the energy market and Ofgem is not taking all the action necessary to tackle the issue and restore consumer confidence.

The MPs want to see a competitive energy market with profitable companies able to invest in Britain's future energy infrastructure.

Robert Smith MP added: " At a time when many people are struggling with the rising costs of energy, consumers need reassurance that the profits being made by the Big Six are not excessive."

"Unfortunately, the complex vertically-integrated structure of these companies means that working out exactly how their profits are made requires forensic accountants."

The six largest energy companies are complex with several different arms - generating, trading and supplying energy - that sometimes sell energy and services to other parts of the same company.

When reporting their overall profits they include all these different business arms making it difficult to determine the precise profits of the energy supply side of the business and how this impacts upon energy prices.

Ofgem is failing consumers by not taking all possible steps to improve openness and increase competition in the energy market, the report concludes.

The MPs criticise the regulator for its relatively light touch approach and for not fully implementing the recommendations of the accountants (BDO) it commissioned to improve how energy companies report their profits.

Considering consumers' lack of confidence in energy companies, the MPs argue, Ofgem should reconsider whether the transparency to be gained by implementing more of BDO's recommendations outweighs the costs involved."

Committee member John Robertson MP added: "Ofgem needs to use its teeth a bit more and force the energy companies to do everything they can to prove that they are squeaky clean when it comes to making and reporting their profits."

The report also reprimands the Government for not doing enough to help the millions of low-income families living in poorly insulated homes,  struggling in 'fuel poverty'.

Spending on the problem has been cut in England and some of the Government's fuel poverty programmes appear to be in hiatus.  The use of levies on bills to fund social and environmental programmes will add to the burden faced by energy bill payers.  The MPs argue that to help protect the most vulnerable more programmes should be funded through direct taxation rather than levies.

Responding to the report Energy and Climate Change Secretary Ed Davey said: "We are doing all we can to help consumers keep their energy bills down and reduce the number of people in fuel poverty.

"We are using the Energy Bill to ensure that all households will be able get the best deal for their gas and electricity as soon as possible. This means getting people off poor-value dead tariffs, cutting the number of tariffs and giving consumers clear personalised information on their bills so they can compare and switch supplier.

"Our policies to support renewable energy and reduce energy waste are insulating consumers from the rising cost of fossil fuels. And by 2020, our analysis shows household energy bills will on average be £166 lower than they would be if we did nothing.

"We have amended the Energy Bill so that there will be a new fuel poverty target and strategy focused on those fuel poor households who most need support. Our new target will focus on improving energy efficiency for fuel poor households."

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