Ofgem
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Ofgem reforms bring more transparency to company profits
- New requirement for independent audit of suppliers’ annual statements
- Faster publication – six month deadline reduced to four months after year end
- Greater clarity on main cost drivers behind customer bills
New rules proposed today by Ofgem will make information on energy company revenues, costs and profits more robust, useful and accessible. The rules, expected to come into force next year, include a requirement for the companies to have their annual segmental statements independently audited, which will increase consumer and business confidence that profits are being reported accurately. Companies will also be required to publish their statements no later than four months after their financial year end.
A further key reform aims to increase understanding of the main cost drivers behind customer bills, and ease comparison between statements, by requiring companies to report their costs under a common set of categories. These are: wholesale costs; network costs; environmental and social obligations costs; and supplier operating costs. The 2013 statements included these categories for the first time; further work will be undertaken with the companies to refine the current guidelines on how to allocate costs to these categories in all future statements. An independent review of the companies’ transfer pricing practices, commissioned by Ofgem this year, provides even greater confidence that the 2013 statements give an accurate picture of profits in the different segments of their businesses.
Since 2009 Ofgem has required the six large energy companies to produce annual statements showing the actual revenues, costs and profits of their generation and supply businesses. Today’s package of reforms is part of Ofgem’s commitment to make the financial information available as robust, accessible and relevant to consumer and stakeholder concerns as possible.
Rachel Fletcher, senior partner for Ofgem’s markets division, said: “With energy prices rising and many struggling to pay their energy bills, there is understandably significant public interest in the profits of the large energy companies, and particularly the profits of their retail businesses. Our proposed reforms are providing increased transparency on company profits. This is important to inform public debate, encourage competition and to help suppliers rebuild customer trust.”
Ofgem has also today published its analysis of the companies’ 2013 statements.The revenues, costs and profits of the large energy companies in 2013 summarises the results and compares them across companies, market segments and over time.
