UK power regulator accused of shifting prices to customers

Power retailers are making larger revenue margins as a result of the trade’s regulator has shifted among the dangers and prices of working their enterprise to family payments, UK shopper group Residents Recommendation has mentioned.

Ofgem, the power regulator, launched a collection of measures this August that boosted revenue margins allowed underneath the federal government’s power value cap — which was instituted in 2019 and put a restrict on how a lot energy firms can cost per unit of power.

Allowed revenue margins underneath the worth cap have virtually tripled from round £24 per buyer on a mean twin gasoline invoice in October final 12 months to £63 throughout the identical month this 12 months, in keeping with Residents Recommendation.

“Provider revenue margins are larger than they need to be,” mentioned Andy Manning from Residents Recommendation. “We’re involved that customers already confronted with a price of dwelling disaster are being pressured to prop up power suppliers.”

The measures contributed to the 80 per cent enhance within the value cap to £3,549 a 12 months for a mean family from October 1. Households have subsequently been protected by a authorities bailout — the power value assure — which is able to restrict prices for the everyday house to £2,500 till April subsequent 12 months.

Nevertheless, the assure additionally protects suppliers as a result of they obtain a assured fee above that degree, which is included within the wholesale value of energy, mentioned Residents Recommendation.

Ofgem made the adjustments to cease extra power firms from failing after 29 of them collapsed final 12 months. The price of transferring the purchasers of failed suppliers to rivals is being unfold throughout all family power payments. The Nationwide Audit Workplace in June mentioned that each family is already paying a further £94 a 12 months on their power invoice to cowl the prices of collapsed power firms.

However Residents Recommendation mentioned the protections launched for suppliers in August have been already including to buyer prices and that the regulator had both “transferred threat from suppliers to prospects or offered separate remuneration” to firms, which is paid for by households.

Analysts at Investec have forecast that the power value cap will rise to £4,211 from January — although the federal government value assure will nonetheless be in place.

Martin Younger, analyst at Investec, mentioned that “supplying power had turned out to be a riskier enterprise than anticipated and the trade wants well-capitalised suppliers who can convey ahead innovation to help the drive to web zero”.

Ofgem has flagged considerations that allowed revenue margins underneath the worth cap are too giant and launched a stakeholder session on the query in August. “The present method may present unduly excessive returns to power suppliers,” the regulator mentioned.

“We’re at the moment contemplating all representations. We intend to publish a statutory session quickly.”

Measures launched in August which have protected suppliers embody a call to permit firms to recoup the price of “backwardation” from October — shielding suppliers from important mismatches within the value of near-term energy and fuel and costs within the futures markets.

There may be additionally a “market stabilisation” mechanism, which compensates firms — at shopper expense — if prospects swap suppliers earlier than utilizing the power that had been purchased for them at excessive wholesale costs.

A cap on the worth suppliers pay for the electrical energy system operator to steadiness the system has additionally been launched with customers paying the distinction.