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Ofgem's monthly report on estimated energy company profits is "wildly exaggerated" and should be abandoned, according to trade association Energy UK.
The group said that independent research undertaken by economic consultancy Nera shows that Ofgem’s monthly supply market indicator (SMI) has consistently reported inaccurate and misleading estimates of energy company profits for the past four years.
In some cases the estimates have been flawed by as much as 200 per cent, the research shows.
Ofgem produces the SMI each month to give an indication of the amount of profit a typical energy supply company might make based on prevailing wholesale prices. However, Nera says Ofgem’s methodology overestimates average energy consumption patterns while underestimating cost.
“The report shows that the SMI takes no account of what energy companies have to pay out in financing costs, interest or tax but gives the misleading impression that there are massive profits to be made. Ofgem’s Dermot Nolan admitted the SMI was no predictor of future profits but Ofgem still risks misleading customers by publishing these inaccurate figures every month,” said Energy UK chief executive Lawrence Slade.
“It’s high time the SMI was abandoned,” he added.
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