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March 2015 SMI from Ofgem

March 2015 Supply Market Indicatorsofgem strapline


  • The cost of the average gas contract has decreased by 0.9% between 2009 and 2015

  • The cost of the average electricity contract has decreased by 1.2% between 2009 and 2015

  • Month on month the constituent parts of the energy price have moved thus:




Wholesale Costs

Network Costs

Environmental & Social Obligation Costs

Supplier Costs

Supplier Profit


In our regular monthly review of Ofgem’s Supply Market Indicators we focus on March 2015’s release from the energy regulator.

In detail the March 2015 SMI from Ofgem reported that:

Wholesale Prices

  • According to Ofgem wholesale prices for next Winter have fallen since the start of 2014 with the gas price 23% and the electricity price 18% lower
  • Ofgem now forecast that wholesale prices will make up just 46.3% (47.3%) of the average gas bill
  • Whilst wholesale costs are forecast to make up just 37,2% (37.8%) of the average electricity invoice
  • The equivalent figure 12 months ago was 51.2% and 39.1% for gas and electricity respectively.

Network Costs

  • For gas customers, Ofgem has forecast that network costs will make up 20.9% of the overall bill and for electricity customers 24.3%
  • Forecast network costs for gas saw a moderate decrease of 0.1% over last month, whilst those for electricity saw a fall of 0.4%

Environmental & Social Obligation Costs

  • Ofgem also reported that environmental and social obligation costs are forecast to make up 3.3% of the average gas bill and 11.7% of the average electricity bill.
  • The forecast for electricity environmental & social obligation costs saw a decrease of 1.0% compared to last month whilst the forecast for gas has fallen more marginally by 0.2% according to Ofgem’s figures.

Supplier Operating Costs

  • Ofgem forecast that supplier operating costs (including margin) for gas customers will be 13.0%, whilst for electricity customers they are forecast to be 12.7%.

Supplier Pre Tax Margins

  • Ofgem’s interpretation of supplier ‘Pre Tax Profit Margin’ is 11.8% for gas and 8.6% for electricity.
  • Ofgem’s forecast of supplier pre-tax margins has increase by 4.9% for electricity customers and 8.3% for gas customers compared to last month.

Note: Ofgem report supplier ‘Pre Tax Profit Margin’ on a rolling 13 month basis. This is seen as controversial as the revenue forecast by Ofgem delivers a different outcome to the strict in month cost breakdown as detailed below:

  • Using this alternative methodology of using Ofgem’s base data of in-month revenue and cost forecasts this implies a pre-tax margin of 11.1% for gas and 8.8% for electricity,

Ofgem’s SMI 2009-2015

Ofgem’s SMI has been reporting since 2009.

Between 2009 and 2015 Ofgem’s forecasts for costs not under the control of the supplier, excluding wholesale costs, have:

  • risen for electricity customer from £165 in 2009 to £246 today, an increase from 28% to 41%.
  • fallen for gas customers from £216 in 2009 to £206 today, a decrease from 30% to 29%

In contrast, Ofgem’s predictions for wholesale energy costs have actually fallen over the period as a proportion of energy cost:

  • from 60% for gas contracts in 2009 to just 46% today.
  • from 57% for electricity contracts in 2009 to just 37% today.

Ofgem’s forecasts of supplier operating costs, including margin, have:

  • for gas contracts jumped between 2009 and 2015 from 10% to 25%
  • for electricity customers from 15% to 22% .

Whilst according to Ofgem’s forecasts supplier operating profit has:

  • for gas contracts jumped from a loss of 0.3% in 2009 to a profit of 11.1% today
  • for electricity contracts risen from a profit of 2.0% in 2009 to to 8.8% today.

Ofgem’s base data suggests that the overall cost of:

  • the average gas contract has decreased by 0.9% between 2009 and 2015
  • the average electricity contract has decreased by 1.2% between 2009 and 2015