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When £50 Equals £100: Centrica vs. Ofgem

pound coinsEach month Ofgem publishes its Supply Market Indicators (SMI), a look at the cost of energy and its constituent elements. In reality however the SMI is focused on one figure alone, the profit per account earnt by energy suppliers.

Ofgem have consistently highlighted the impact of this cost on the price of energy and their latest SMI was no different with the regulator claiming that £101 profit was being made for each dual fuel customer.

However a keen student of the energy market could look a little closer at the SMI and spot greater influences on the price of energy, not least the cost of government levies and subsidies. Although understandably these make for a less palatable conversation compared with lambasting energy suppliers for making profits.

Indeed such is Ofgem’s focus on this area that they have followed up their open letter of February 2014 concerning “improving the transparency of energy company profits” with this month’s announcement of a consultation into the subject.

Ofgem’s long-term view is to implement a new licence condition on energy suppliers to obligate them to provide uniform and auditable results.

Unsurprisingly the energy suppliers are getting tetchy with all the interference, claims and counter claims and with suppressed profits and falling market shares at the front of their minds, are taking the fight back to Ofgem,

British Gas Business are openly challenging the authority of the calculations being used by Ofgem to derive profit per customer and are claiming from their own figures that the level is £50 rather than £100 and falling as opposed to Ofgem forecast of increases.

Already contending with the CMA investigation into the energy market and the apparent position gifted to British Gas as the ‘leader’ of the Big 6 it appears that they have bigger fish to fry and that Ofgem may just be pushing the wrong buttons of the wrong business.

Fireworks are likely to fly, picking a winner won’t be any easier than deciphering energy company results but now that it’s the CMA and not Ofgem calling the shots, British Gas and parent Centrica may just scent blood.

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