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August SMI from Ofgem

Supply Market Indicators

After the controversy surrounding July’s SMI report from Ofgem, August has been a quieter, more reflective affair complete with the suitable caveat that:

“As part of the SMI, we [Ofgem] include a forward looking estimate of margins. They do not represent the profits of the individual six largest suppliers, as the companies still have to pay taxes and fund debt payments from the margin they make. Reporting margins in this way is common across various sectors”.

Whilst this comment won’t necessarily assuage all the complaints of the Big 6 suppliers it at least provides a context to the data contained within Ofgem’s estimate of energy retail market costs.

The August 2014 SMI from Ofgem reported that:

  • They estimate that the average annual dual fuel bill will remain steady over the next 12 months at around £1,330
  • That wholesale prices have fallen since the start of 2014 with the gas price 15% lower and the electricity price 7% lower
  • That wholesale prices will make up around 45% of the average dual fuel bill
  • That network costs will increase to £301 of the average bill over the next 12 months from £298 in July
  • That environmental and social obligation costs will increase from £84 to £85 however this is still down on the £92 forecast of June 2014
  • That supplier operating costs will be around £174 or 13% of the average dual fuel bill
  • That supplier profit margin, no defined as Supplier pre-tax margins will be lower at £102 compared to July’s estimate of £106 equivalent to 8% of an annual duel fuel bill

Once again the key ‘take-out’ here is that whilst suppliers, particularly those that are vertically integrated, are the subject of Ofgem and the consumers and commentators ire, Ofgem’s own figures suggest their ‘take’ is decreasing.

Indeed with supplier operating costs holding steady and pre-tax margins falling, it is again areas suppliers have no or varying degrees of control over that are sustaining energy price levels, those being the government levies, taxes and green subsidies and network upkeep costs.

As we have previously said however, those sort of realities don’t make such powerful headlines, perhaps the CMA investigation will solve that problem too.

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