Big Energy Firms make £1bn profit despite loss of millions of customers

1st November 2017 | Residential Energy

The UK’s biggest energy companies made a profit of £1bn last year and have increased their profit margins in recent years despite losing millions of customers to challenger firms, according to Ofgem – the Office of Gas and Electricity Markets.

The energy regulator said the big six suppliers enjoyed a healthy margin of 4.5% on average in 2016 by charging higher prices to consumers who have not switched, with the gap between the best and worst tariffs widening to £300 a year.

Almost half of people who are unemployed or in low-skilled work have never switched supplier, a new report by the regulator found. For other customers, the figure is below a third.

“Suppler margins have been rising fairly significantly over the last seven years or so,” said Joe Perkins, Ofgem’s chief economist. “Some of that increased margin is clearly down to increased cost efficiencies but the level of [consumer] engagement also plays a role.”

Big energy firms

The regulator found that if energy suppliers made the same profit on poorer-value standard variable tariffs (SVT) as they did on cheaper fixed-term deals, the big six would have posted a loss of 6% last year.

British Gas, the biggest of the big energy firms, made the biggest profit margin last year, at 7.2%, followed by Eon with 7%, SSE with 6.9% and Scottish Power with 5.2%. Npower and EDF both made a loss.

“Less-engaged consumers appear to allow suppliers to offer very competitive prices to engaged consumers and still make a profit after deducting their operating costs,” the report said.

Theresa May has cited the higher prices for those who have not shopped around as the reason for her price cap on standard variable tariffs.

A spokesperson for the Department for Business, Energy and Industrial Strategy (BEIS) said, “The regulator’s report shows there are still millions of people paying too much for their energy.

While it is positive to see 1 million fewer people are on poor-value tariffs this year, it is not right that the majority of people remain on them.”

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