Big six earnings rise tenfold in six years, says CMA

The Competition and Markets Authority (CMA) has found that the earnings made by big six energy companies increased tenfold in the years from 2007 to 2013, with higher margins taken from household customers on standard tariffs.

As part of its ongoing probe into the energy sector the CMA reported initial findings that the companies’ total earnings have spiralled from £110 million in 2007 to £1.1 billion in 2013, meaning the amount paid by customers over and above supplier costs has increased from £1.32 per dual fuel bill to £48.16 over the same period.

Energy companies have consistently maintained that the profit margin made on supplying the household market is around 3.9 per cent, which is relatively modest in retail terms.

But the CMA has added that higher margins are made on standard variable tariffs, which are more likely to be used by so-called ‘sticky customers’ who do not shop around for their energy deals and subsequently pay above the odds compared to those who switch to cheaper offerings.

The CMA has already reported that over 95 per cent of energy customers could save around £200 by switching away from a standard tariff but the fresh focus on suppliers earnings is likely to add further fuel to an already highly politicised debate in the run up to the May general election.

Late last week the opposition Labour party upped the ante on its promise to overhaul the energy market if it comes to power, saying it would take immediate action to push through legislation which would give Ofgem the power to force price cuts.

The Labour party press team suggests that a cut of 10 per cent could be made, based on estimates from consumer watchdog Which?.

Labour energy minister Tom Greatrex told The Telegraph: “This is yet more evidence that energy companies are increasing their profits on the back of spiralling bills for households and businesses.

“The next Labour government will freeze energy prices until 2017, so that bills can only fall and not rise, and give the regulator the power to cut bills in time for winter,” Greatrex added.

The latest report from the CMA follows one month after the authority spoke out for the first time since the wide-ranging probe began, to say that over 95 per cent of dual fuel energy customers could have saved between £158 to £234 per year by switching from a big six standard variable tariff.

The higher tariff level also allows the companies to extract greater revenue from their customers, the CMA’s initial findings showed.

Revenue from standard variable tariffs was found to be 12 per cent higher than average revenue from other big six electricity tariffs and 13 per cent higher for gas.

The full recommendations from the authority will only be made public this summer, after the election. And the final conclusions will be delivered by the end of the year.