Need to invest ‘does not justify high profits of big six’: report

The need to invest in new generation does not justify the profits currently being made by the retail arms of the big six, the head of the Competition and Markets Authority’s energy market probe has insisted.

The argument has “no commercial logic” as they “are not making the stuff”.

“Remember, all they are actually doing – and I shall get into trouble for this – is metering and billing,” Roger Witcomb said in an interview with the Telegraph.

“Most of the costs are a straight pass-through. The retail activity is acquiring the energy in the first place, buying in the wholesale market and then marketing and metering and billing. There’s no capital in this market.”

The CMA’s final report, published towards the end of June, said the big six had made “excessive” revenues averaging £1.4 billion between 2012 and 2015, and rising to £2 billion in the final year.

According to Ofgem the average EBIT (earnings before interest and taxation) margin for the retail divisions of the big six averaged nearly 4.5 per cent in 2014. By comparison the CMA said a margin of less than a third of that – 1.25 per cent – would be appropriate.   

Nevertheless, Witcomb said customers are not being overcharged as “they didn’t have to pay for it”: “There are deals out there which are much cheaper. They are paying more than you would expect them to pay.”

He denied that the big six are to blame for consumers paying over the odds: “Absolutely not. They have set prices and people have paid them.” He said it’s not the consumers’ fault either: “It’s nobody’s fault, it’s the structure of the market.”

“What we have said is, it is too difficult at the moment for people to shop around. All our remedies are to make it much easier and cheaper to shop around,” he added.