Energy firms’ profit margins soar

14 October 2011 Last updated at 02:32 ET

Gas and electricity prices have been rising in recent months

The average amount of profit being made by energy companies has risen to £125 per customer per year, from £15 in June.

But the energy regulator Ofgem has predicted that the profit margins will fall back to about £90 next year.

The average dual-fuel bill is now £1,345 a year following recent price rises from all the big suppliers.

Ofgem has also confirmed it will force suppliers to simplify tariffs to make it easier to compare prices.

Ofgem’s profit margin figures measure the amount that will be made by suppliers in the next year if energy prices and bills remain unchanged.

As part of the simplification plan, suppliers will be forced to have no-frills tariffs, which would consist of a standing charge – fixed by the regulator – plus a unit charge for energy used.

It means that the only number consumers would have to compare between suppliers would be the unit energy charge.

More complicated tariffs would still be available, but they would have to be for a fixed period, with price increases not being allowed for the duration of the deal.

The regulator will publish its detailed proposals for consultation next month and hopes to have implemented some of its reforms in time for winter 2012.

“When consumers face energy bills at around £1,345 they must have complete confidence that this price is set by companies competing in a fully competitive market,” said Ofgem’s chief executive Alistair Buchanan.

“At the moment that is not the case.”

In addition to trying to boost competition by simplifying tariffs, Ofgem is looking at how to reform the wholesale energy markets, which are the places suppliers go to buy their energy.

Ofgem wants to reform those markets to allow greater competition with the big suppliers and will publish proposals in December.

The bigger suppliers have an advantage because they generate their own power, selling most of it to consumers, with little of it going to wholesale markets.

But earlier in the week, Scottish and Southern Energy announced plans to auction all of its power on the open market.

Ofgem has proposed that utilities must auction 20% of their electricity by 2013.

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