Ofgem has published its latest monthly projection of costs and revenues for a typical large energy supplier over the coming 12 months.
As a regulator it is important that Ofgem provides these figures to make the market clearer for consumers. The supply market indicators (SMI) help them to understand the relationship between their bill and the different costs faced by these suppliers.
As part of the SMI, they 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.
The actual margins earned by any of these suppliers will depend significantly on their own particular hedging strategy, cost efficiency and particularly on actual consumption levels, which are themselves affected by weather, especially in gas.
The latest indicators show that the average dual fuel bill from August 2014 to August 2015 will be £1330. The portion of the dual fuel bill made up by suppliers’ wholesale costs is £598. This is a similar amount to wholesale costs Ofgem reported in the July update. Network, environmental and social costs make up £386 of the bill. Our estimate of supplier operating costs for the next 12 months is £174.
Their estimate of the pre-tax margin that a typical large supplier could make over the same period is £102 or 8%. This is a decrease of £4 on last month’s estimate.
To read this month’s supply market indicator analysis in full, go to Ofgem 1
Since 2009 Ofgem has required the six largest energy suppliers to produce annual statements showing actual costs, revenues and profits for their generation and supply businesses. These statements can be found at Ofgem 2