Ofgem pledges energy supplier profit bonanza will be a ‘one off’
The mega profits unveiled by energy retailers this week are a one-off, pledges market watchdog Ofgem, as suppliers recouped vast sums from allowances included in the price cap and announced record earnings.
Ofgem confirmed that the sector is expected to return to profit this year after four years of loss making, but that the hundreds of millions of pounds in earnings posted by suppliers was a freak scenario with energy firms clawing back costs incurred by the price cap during the energy crisis.
A spokesperson said: “We expect profit levels to fall back significantly moving forward to the reasonable and modest levels allowed for in the price cap. In future this will help prevent supplier failures, such as the ones we saw at the start of the energy crisis, which cause disruption and additional costs for all households.
It also called on the industry to “learn the lessons of the energy crisis” that saw 30 suppliers collapse, most notably the de-facto nationalisation of Bulb for nearly a year, and urged energy firms to do more to “look after their customers”.
“We have been clear they must not pay dividends until they are financially robust enough to weather future shocks. We’re closely monitoring levels of customer service, support and financial adequacy and can and will act where suppliers are found lacking,” the spokesperson confirmed.
Energy supplier profits draw fresh scrutiny
Earlier today multiple energy firms posted huge rebounds in earning, including Scottish Power and EDF.
However, Centrica announced the biggest upsurge, with its retail arm British Gas unveiling record half-year profits of £969m, a near 10-fold increase year-on-year.
It attributes at least £500m of this spike to Ofgem’s decision to allow the recovery of prior period costs for suppliers through raised allowances in the default price cap.
The company expects conventional earnings to be within £150-200m on an annual basis once markets have calmed.
It has also pledged to hike its support package to £100m for vulnerable customers, with the supplier home to 7.5m household customers.
Ofgem is now set to tighten allowances in line with falling gas prices, and has also introduced fresh capital adequacy measures for energy firms.
However, the sector has faced criticism from anti-poverty charities such as the End Fuel Poverty Coalition, with coordinator Simon Francis warning that “these profits are a further sign of Britain’s broken energy system”.
He argued that the bumper earnings will be “greeted with disbelief by those struggling through the crisis” of spiralling household debts.
“There will of course be questions about how these profits were made, but the reality is that energy firms are operating on a playing field set by the government. People will rightly ask what this government is doing to curb these profits and fix our broken energy system,” he said.
Cornwall Insight has updated its expectations for the price cap – with the forecaster predicting that energy bills will remain double pre-crisis levels for the next 15 months.
The government has been approached for comment.