Tricks of the trade: Jillian Ambrose

“Even energy firms have a task calculating costs”

Amid increasingly heated political debate and volatile energy market moves there’s at least a little comfort in the knowledge that some things never change.

For this week it’s the sighting of a national newspaper bleating over the mind-boggling profits enjoyed by energy suppliers.

Just to be clear: I’d be first in line, tar and feathers at the ready, to lambast unfair energy company profits. But when the news report in question bases its outrage on “Ofgem data”, I know that, at least for today, my outrage will be directed elsewhere.

Ofgem’s oft-misinterpreted “supply market indicator” estimates a forward-looking picture of average costs and margins for a large energy supplier, providing a snapshot of a hypothetical scenario. Ofgem is the first to say it doesn’t have access to energy companies’ hedging strategies, operating costs or forecast customer consumption. In fact, it stresses that it “does not seek to provide a forecast of company profits”. It even types that bit in bold.

That doesn’t stop the national press from running the indicator as if it were fact when the model presents large enough profits to warrant a headline.

The truth is, even for energy companies themselves it is a mammoth task to untangle the many contracts and trades that ultimately determine the cost of wholesale gas and power, and therefore profitability.

Hats off to Ofgem for trying to bring some clarity to a complex issue. It’s just such a pity the result so often is a headline which muddies already rather murky waters.