U.K. Energy Regulator Urged to Act on Power Supplier Profits

U.K. energy regulator Ofgem should act to make energy company profits more transparent and increase competition in a market dominated by Centrica Plc, EDF Energy Plc and EON SE, lawmakers said.

The six largest energy companies, including SSE Plc, Scottish Power Ltd. and RWE AG have different units generating, trading and supplying energy, Parliament’s multi-party Energy and Climate Change Committee said in a report. This makes it difficult to determine profits they make from energy supply and how this impacts on energy prices, the lawmakers said.

The report fuels debate over energy costs in the U.K. where suppliers garnered criticism for posting profits while raising prices. RWE Npower Plc said this month it controls just 16 percent of the energy bill with costs of government policies to spur low-carbon generation absorbing most of a 20 percent bill increase it expects by 2020. The government says wholesale gas and power prices are the main driver behind rises.

“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,” Robert Smith, acting chair of the committee, said in a statement with the report. “Unfortunately, the complex vertically-integrated structure of these companies means that working out exactly how their profits are made requires forensic accountants.”

Ofgem should shine a “brighter light” on companies to reassure consumers high energy prices aren’t fueling excessive profits and adopt recommendations by accountant BDO LLP on improving energy company reporting, it said.

Vulnerable Homes

The report also said government is not doing enough to support millions of low-income families in poorly insulated homes. Levies on bills to fund social and environmental programs add to their burden, the lawmakers said.

The U.K. has the so-called Green Deal program to insulate houses and a subsidy program for renewable energy, both paid for by bills. Programs should be funded through direct taxation rather than levies, to help the most vulnerable, it said.

Energy Secretary Edward Davey, speaking today on ITV’s Daybreak program, said his government would study the report and that energy companies needed to be held to account for profits and declare them in a clearer way.

Competition Encouraged

“What we’re are doing, through more competition and through more energy efficiency, is we’re putting a cushion between the prices people are facing and the bills they pay,” Davey said. “We’re on consumers’ side by what we’re doing.”

Ofgem said in an e-mailed statement it welcomed the report and would consider its findings as part of efforts to ensure companies’ statements are clear and accurate.

“We share the committee’s goal of restoring consumers’ trust,” said Rachel Fletcher, Ofgem’s senior partner for markets. “We agree with the committee that suppliers have been poor at communicating with their customers.”

Ofgem is planning reforms that will ensure customers get clearer information about energy, making tariffs simpler, she said. The regulator is also proposing to force companies to publish prices two years in advance to boost competition, she said.

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