Ofgem has just published its latest Supply Market Indicator (SMI) which is a 12-month forward look at cost trends. It looks at the average annual bills for consumers and estimates the annual cost per customer faced by a typical large supplier to deliver gas and electricity.
The SMI is a forward looking view of cost trends for a typical large energy supplier – not one particular supplier. It is not a forecast, or a statement of how much profit an individual supplier has made, or is making.
Ofgem’s goal is to make the relationship between the costs faced by energy suppliers and household consumer bills more transparent and accessible. This makes the market clearer for consumers.
The actual pre-tax profit earned by any large supplier will depend on a variety of factors. These include a supplier’s chosen hedging strategy, cost efficiency and actual consumption levels. These can be affected by weather, especially in gas.
Suppliers also 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 latest indicators for November show that:
• Our estimate of the average dual fuel bill is £1326, down slightly from last month’s estimate of £1328
•We estimate that wholesale gas and electricity costs for the next 12 months will be around £588 or 44% of an average dual fuel bill. This is slightly lower than last month’s estimate of £591
• Our estimate of network, environmental and social costs for the next 12 months have increased by approximately £3 to £305. This is due to updated indicative gas distribution and electricity transmission network charges for 2015/16. From 2015, we expect network costs to remain broadly stable in real terms (i.e. excluding inflation) until at least the start of the next decade.
• Our estimate of supplier operating costs for the next 12 months remains broadly the same as last month at £175.
• Our estimate of the pre-tax margin a typical large supplier could make over the next 12 months, based on a 13-month rolling average margin, is £105. This is up £2 from last month and is due to further reductions in expected wholesale costs over the next 6 months.
The next update will be published on January 29 2015 and the current SMI is available at Ofgem SMI