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BLOG: Ian Peters - Setting the record straight on profit figures

This is wrong and it also undermines trust in the industry at a critical time with Ofgem considering whether to refer the energy sector to the Competition and Markets Authority.

Remembering the mild winter and perhaps our recent profits warning, you may wonder where this information is coming from.

Well, the reports were based on Ofgem’s latest Supply Market Indicator (SMI) statistics - statistics that we think are based on flawed analysis and faulty assumptions. The SMI stats are designed to show the costs energy suppliers face and the bills they charge.

Ofgem says that the monthly SMI is intended to help them estimate the annual bill for average domestic gas, electricity and dual fuel customers and the annual cost per customer a typical large supplier incurs to deliver gas and electricity. We believe these estimates are wrong, leading to badly misleading headlines such as the one above.

We have engaged with Ofgem to put our point across; indeed, we have discussed this with the regulator time and time again and will continue to do so. We’ve also been acting to ensure others get the right information. I recently spoke at a Cornwall Energy event so had the opportunity to refute these statistics on behalf of the industry and we’ve been discussing this with journalists to stop further pieces appearing in the press.

At British Gas we fully support the drive to make bills clearer for customers – we give our customers a breakdown of what makes up an energy bill and details of their own tariff costs in each bill. But the Ofgem SMI stats are based on inaccurate assumptions which makes them misleading.

For example:

  • The SMI uses an average energy consumption figure which is estimated and is far above the real figure; the most recent estimate is based on normal seasonal temperatures and we have had an unusually warm winter, which caused consumption to drop
  • Average consumption is falling in any case as our homes become more energy efficient and these estimated figures do not fully take this into account
  • There are other areas where we are not sure the SMIs are accurate enough either – we don’t think they take the full cost of ECO into account, for example.

All of which makes the suggestion of doubling profits nonsense. Ofgem have ignored the warm weather, falling underlying consumption, and some secondary issues; and as we declared recently, our profits for this year will be down not up.

Like Ofgem, we fully support the drive to make bills easier to understand for consumers. We think that estimates need to be accurate or customers will be less well informed, not more.

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