Call for official probe as energy company profits grow despite price cuts

Regulator Ofgem estimates a large supplier's likely wholesale costs have fallen by £62 per customer over the past year thanks to lower gas prices, while

likely profits have increased by £37 over the same period.

Ofgem's latest supply market indicator (SMI) suggests firms will make a £114 pre-tax margin per household over the year - up £9 on its November

update and 9% of the average dual-fuel bill, driven by "significant declines in expected future wholesale costs".

The forecast comes against the background of international oil prices falling more than 50% since last summer.

Which? believes an official probe could uncover whether energy companies cold have done more to cut the costs to the consumer.

Ofgem said the wider profit margin estimate was "driven by significant declines in expected future wholesale costs", in apparent evidence that

companies are failing to pass on the full savings from lower wholesale prices.

The regulator said it had taken the price cuts announced by all the major suppliers in recent weeks into account before releasing the latest figures, as

well as the introduction of a number of cheaper fixed tariffs to the market.

It said: "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

£114.

"This is up £9 from the November 2014 update. The rise in the rolling margin is driven by significant declines in expected future wholesale costs."

E.ON, British Gas, Scottish Power, npower, SSE and EDF have all announced cuts to their gas prices in recent weeks of between 5.1% and 1.3%.

The scale of the cuts have been criticised by consumer groups.

All have fallen well short of industry estimates, suggesting bills could be reduced by £136 a year if suppliers pass on the full drop in wholesale prices.

The figures are further evidence that the energy market - currently under investigation by competition authorities - is not working as it should, Ofgem

said.

"If the market were more competitive you would expect suppliers to be competing more vigorously for market share in response to falling wholesale

costs."

Richard Lloyd, Which? executive director said: "Consumers will be questioning why their energy bills haven't been slashed further at a time of rising

profits and falling wholesale prices.

"The Competition and Markets Authority's investigation must look at whether lower wholesale energy costs are passed on fairly, or whether a lack of

competition leaves us all counting the cost."

Gillian Guy, chief executive of Citizens Advice, said: "The inadequacy of recent energy price cuts is now clear. Low wholesale costs are allowing energy

companies to increase profits whilst barely cutting energy prices.

"The ball is now back in the energy firms' court to actually compete with each other on further and deeper price cuts."

On Tuesday, Ofgem chief executive Dermot Nolan told the Energy and Climate Change Committee that he was predicting increased margins for energy

companies, adding that this was "clearly cause for concern".

He told MPs: "We are trying to get the message out that it is easy to switch and you can gain from switching.

"But there is the major question of whether and how wholesale cuts that have clearly occurred are being passed on. It is something we will continue to

monitor and measure."

Tom Greatrex, Scottish Labour's shadow energy minister and MP for Rutherglen and Hamilton West, criticised the government for voting against giving

the regulator the power to cut bills.

"They had the chance to stand up for millions of families. Instead, they stood up in favour of the energy companies. They now have nobody else to blame

for the failure of the energy companies to pass on the full savings from wholesale cost falls to consumers in Scotland and across the UK," he said.