Supply Market Indicator for October 2014
31 Oct 2014 01:17 PM
Yesterday Ofgem published its latest Supply Market Indicator (SMI). The SMI is a 12-month forward look at cost trends. It looks at the average annual bills for consumers and estimates the annual cost per customer faced by a typical large supplier to deliver gas and electricity.
The SMI is a forward looking view of cost trends for a typical large energy supplier – not one particular supplier. It is not a forecast, or a statement of how much profit an individual supplier has made, or is making. Our goal is to make the relationship between the costs faced by energy suppliers and consumer bills for domestic energy more transparent and accessible, and to make the market clearer for consumers.
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, which are themselves 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 show a similar picture to the September update:
- Our estimate of the average dual fuel bill is largely the same as last month at £1328.
- We estimate that wholesale gas and electricity costs for the next 12 months will be around £591 or 45% of an average dual fuel bill. This is slightly lower than last month’s estimate of £594.
- Our estimate of Network, environmental and social costs for the next 12 months have increased by approximately £4 to £392. This is due to an increase in Renewable obligation costs for 2015/16 and inflation.
- Our estimate of supplier operating costs for the next 12 months remains broadly the same as last month at £175.
- 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 largely unchanged this month at around £103 or 8% of the annual dual fuel bill.
You can read the SMI analysis in full at Supply Market Indicator.
Ofgem’s work on transparency of costs and revenues: the consolidated segmental statements
Since 2009 we have also required the six largest energy suppliers publish yearly statements which give actual data on costs, revenues and profits for their generation and supply businesses. See the latest yearly statements.
Our web page on supplier profits has a series of graphs showing the key information from these statements and Ofgem’s review of the latest statements for 2013.
Notes to editors
For further press information contact:
Kate Wilcox: 020 7901 7113
Chris Lock: 020 7901 7225
Out of hours media contact number: 07766 511470
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