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Sunday, August 21, 2011

Ofgem investigation into energy oligopoly welcome

The news that Ofgem is to bring in forensic accountants to scrutinise how the Big Six energy suppliers calculate their profits is very welcome.

The Sunday Telegrpah says that Ofgem made the appointment last week after growing concern that the Big Six may be attempting to appear less profitable in their retail divisions as they look to justify higher prices. They add that the new investigation by BDO will investigate the hedging practices, trading profits and wholesale prices paid by the companies:

In March, Ofgem published a review of the retail market and later queried the transparency of five of Britain’s biggest utility companies – Scottish and Southern, Scottish Power, RWE npower, EDF and E.ON – in financial information provided to the regulator.

For their accounts submitted to Ofgem for 2009, the regulator believes these companies may have included £800m of profits from their supply and generation businesses under a variety of other headings in their accounts – mostly as exceptional items.

The utility companies have all strongly denied any suggestions of opacity in their reporting, saying they gave a “true and fair representation of retail margins”. Subsequent accounts for 2010 have more clearly divided all profits into either generation or supply divisions.

However, the Big Six, which also include British Gas, are increasingly under the spotlight over their decision to raise gas prices by 16pc to 19pc and electricity prices by 7pc to 16pc this summer. EDF Energy is the only one so far to have held off increasing bills for the second time in nine months.

Ofgem have also found from their key retail market review, which was published after the winter price rise, that when wholesale prices rose, companies increased bills faster than they lowered them when wholesale prices dropped. At the time, Alistair Buchanan, chief executive of Ofgem, said: “The evidence clearly shows that for the first time, the companies did take advantage of a rising price environment in 2010.”

This is something I have been saying for some time. With consumers facing unprecedented bills for energy consumption it is vital that Ofgem get to the bottom of the energy companies' excuses for eye-watering price rises. Customers have suffered too long and deserve some protection.
These companies have no corporate conscience. I thought it was only the customers' bills that were inscrutible. Imagine these companies also trying to obscure their actual whole-scale profits from the watch-dogs. I regard that as seriously nasty.
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