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Supply Market Indicator for February 2015

Yesterday Ofgem published its latest supply market indicator (SMI). The SMI is published on the last Thursday of each month. 

The SMI is a 12-month forward look at cost trends in the domestic energy market. It estimates the average annual household bill and the annual cost per customer faced by a typical large supplier to deliver gas and electricity. Ofgem’s goal in producing the SMI is to make the relationship between the costs faced by energy suppliers and household consumer bills more transparent and accessible. This makes the market clearer for consumers.

The supply market indicator does not represent the cost trends of any one particular supplier. It includes an estimate of a typical large supplier’s pre-tax margin. This is not a statement of past, current or predicted future profits.
The actual pre-tax profit earned by any large supplier will depend on a variety of factors. These include a supplier’s chosen hedging strategy, cost efficiency and actual consumption levels. Demand for energy is affected by weather, especially in gas. Suppliers also still have to pay taxes and fund debt payments from the margin they make. Reporting margins in this way is common across various sectors.

The latest indicators for February show that:

Our estimate of the average dual fuel bill is £1301 down from the January 2015 estimate of £1305. This assumes seasonally normal demand, and takes into account the price cuts to variable tariffs announced by large suppliers in recent weeks, as well as the introduction of a number of cheaper fixed tariffs to the market.

We estimate that wholesale gas and electricity costs for the next 12 months will be around £566 or 43 per cent of an average dual fuel bill. This is £9 lower than January’s estimate of £574. The equivalent estimate a year ago was £635. This reflects the significant downward shift in forward prices over the past year.

We estimate that network costs for the next 12 months will be £296 or approximately 23 per cent of the average dual fuel bill. This is broadly the same as it was last month and a year ago. This is due to the impact of Ofgem’s price control for electricity distribution companies. 

Our estimate of the cost of environmental and social obligations for the next 12 months is around £93 or approximately 7 per cent of the average dual fuel bill. This is around £4 higher than our estimate a year ago.

Our estimate of supplier operating costs for the next 12 months remains broadly the same as last month at £176 or around 14 per cent of the average dual fuel bill. 

In aggregate, costs fell by £9 from January’s estimate to £1193. 

Our estimate of the pre-tax margin a typical large supplier could make over the next 12 months, based on a 13-month rolling average margin, is £113 or around 9 per cent of the estimated average annual dual fuel bill. This is down £1 from the January 2015 estimate.  

The SMI analysis is available in full at Supply Market Indicator.

Notes to editors

Ofgem’s work on transparency of costs and revenues: the consolidated segmental statements

Since 2009 Ofgem has required the six largest energy suppliers to publish yearly statements on the actual costs, revenues and profits for their generation and supply businesses. See our latest review of the companies’ 2013 statements. We expect all the large suppliers to have published their 2014 consolidated segmental statements within four months of the end of their financial year, following our decision last year to set a faster timetable for suppliers.

Our web page on supplier profits also has a series of graphs showing breakdowns of profit figures from 2009 to 2013.

For further press information contact:

Kate Wilcox: 020 7901 7113
Chris Lock: 020 7901 7225
Out of hours media contact number: 07766 511470

Related Links

 

Channel website: https://www.ofgem.gov.uk/

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