Big Six Energy Firms Face New Profits Storm

The so-called 'big six' firms enjoyed an average profit margin of 20% for energy generation in their last financial year.

The revelation, made by Ofgem following its analysis of the companies' accounts for 2012, prompted the regulator to suggest it may insist on greater clarity in future to ensure that the profits were a fair reflection of investment in future power generation.

The watchdog found that the average profit margin for supply to household customers was 4.3% - in line with the claims made by the industry.

But it calculated the average profit margin made in generating energy in 2012 was 20% - slightly lower on the previous two years - but still high in the context of rising household bills.

The study sought to explain the disparity between supply margin and that for generation by pointing out that the generation part of a business needed significant sums of money over the long term to invest in building new power stations.

EDF is involved in the planned new Hinkley Point nuclear power station

Ofgem said it was now considering whether companies needed to provide additional profit measures in generation which took account of capital investment to help ensure greater transparency.

The big six - SSE, E.ON, EDF Energy, Scottish Power, npower and Centrica's residential arm British Gas - have faced a backlash from politicians and consumer groups since the latest round of bill increases - of up to 11% - was announced.

Of the firms, only E.ON is yet to confirm its increase ahead of the coming winter.

Ofgem's report follows analysis of statements the companies have had to submit annually since 2009 as part of efforts to subject the firms to greater financial scrutiny.

npower's Pembroke power station replaced old gas capacity

The statements showed that across all six suppliers, overall profits for energy supply and generation fell from £3.9bn in 2011 to £3.7bn in 2012.

However, profits in supply to households and businesses increased from £1.25bn in 2011 to £1.6bn.

Energy companies have insisted their profits are fair, reflect wholesale costs and the country's need to invest in future supply.

Amid the criticism of the industry over the latest rises to bills, the firms highlighted the growing cost to households from so-called green levies.

The environmental and social charges could be placed under general taxation by the Government in the coming Autumn Statement.

The firms have pledged to cut back the rises to bills to match any reduction to the charges confirmed by the Chancellor on December 5.

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