Energy watchdog Ofgem failing consumers, say MPs

John Robertson, MP: "When we ask for figures they don't give it"

Energy regulator Ofgem is not doing enough to ensure that energy company profits are transparent, MPs say.

The Energy and Climate Change Committee (ECCC) report said the watchdog was "failing consumers by not taking all possible steps to improve openness".

The committee said that "working out exactly how their profits are made requires forensic accountants".

Ofgem said it had made energy companies produce yearly financial statements and they had been reviewed by accountants.

Sir Robert Smith, on behalf of the committee, said: "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."

The big six are E.On, SSE, British Gas, Npower, EDF and Scottish Power.

They have different divisions to deal with the different functions of their businesses: generation, trading and supply.

The committee said that the divisions sometimes bought and sold services and energy from each other, making it difficult to work out how much money was being made overall.

"Greater transparency is urgently needed to reassure consumers that high energy prices are not fuelling excessive profits," the committee said.

Angela Knight, Energy UK: "The profit an energy company makes is not big but households are concerned"

Poor communication

The MPs criticised Ofgem for having a "relatively light touch approach and for not fully implementing the recommendations of the accountants it commissioned to improve how energy companies report their profits".

"Ofgem needs to use its teeth a bit more and force the energy companies to do everything they can to prove that they are squeaky clean when it comes to making and reporting their profits," said committee member John Robertson.

Ofgem agreed that the energy suppliers had been "poor at communicating with their customers".

"Ofgem has made energy companies produce yearly financial statements, which have been reviewed twice by independent accountants and found to be fit for purpose," said Ofgem's senior partner for markets, Rachel Fletcher.

MPs' recommendations

The committee believes that Ofgem should force energy companies to:

  • Standardise their bills to make it easier for consumers to compare the value for money of different energy providers
  • Break down the total cost of the bill into its components, ie wholesale energy prices, supply costs, the cost of implementing government energy policies, operating costs, and profit
  • Give consumers details of price changes in pounds and pence, and not just in percentages

Which? executive director Richard Lloyd said that the public would not feel that they were paying a fair price for energy until prices were simplified and the costs that went into generating them were as transparent as possible.

"We want the government to introduce simple energy pricing and a clear ring-fence between generation and supply businesses, so consumers can see exactly what they're paying for and be more confident that there is effective competition in the energy market," he said.

Angela Knight, the chief executive of Energy UK, the body that represents the energy companies, said the industry had come a long way on transparency.

"There are fewer tariffs and the new deals are clearer so it is easier to compare, bills have been simplified so they are easier for customers to follow and it is simple to switch from one supplier to another," she said.

Ms Knight told the BBC that "profit was a good thing and a very important thing", because of the investment the energy companies need to make in generation and infrastructure.

She added that the energy companies provided Ofgem with all the necessary information.

"Energy companies all publish annual accounts and, in addition, both the generation and supply parts of the business provide Ofgem with all the information about revenues, costs and profits for which the regulator asks," she said.

Fuel poverty

Sarah Harrison, Ofgem: "Our retail reforms will reduce the number of energy tariffs and put new obligations on the energy companies"

The Energy and Climate Change Committee also reprimanded the government for not doing enough to help low-income families struggling with fuel poverty.

The committee argued that the use of levies on fuel bills to raise funds for social and environmental programmes could end up hitting those on low incomes.

Instead, they recommended such funding be raised through direct taxation.

Sir Robert said: "Tax-funded public spending is a less regressive mechanism than levies on energy bills, which can hit some of the poorest hardest. Shifting the emphasis from levies to taxation would help protect vulnerable households."

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