Ofgem hires the BDO - are our worst suspicions confirmed?

Well it’s getting serious now.

Ofgem have announced that they’ve appointed ‘forensic’ accountants BDO to pour over the segmented accounts of the Big 6 energy suppliers...we’ve blogged about the segmented accounts already in 'Are energy suppliers making too much money?')

Well, it seems something within those accounts has aroused the suspicions of Ofgem, and not just the revelation of the significant profits made from supplying business energy....we’ve blogged about the regulator too in 'Ofgem: the return of the fat cat?'

So why blog again?

Well, things are getting VERY interesting.

For a start, the segmented accounts for 2009 and 2010 (the first to be published) are being ‘forensically’ reviewed in order to “give recommendations on how best to improve accounting disclosures by energy suppliers”. That sounds like they are trying to tell us something.

Ofgem believe that the 2009 accounts contained some £800m of profits that were not ‘clearly’ attributed to supply or generation activities (instead they were mostly being listed as exceptional items).

For 2010, Ofgem has already pushed for an improved format of disclosure, which it was acknowledged that the Big 6 had delivered.

But it appears something is still buzzing in someone's bonnet, and it’s getting personal. We’ve recently had the furore over Lord Mogg’s salary at Ofgem and now the heads of the Big 6 are in the firing line...with a claimed £10m of collective earnings being quoted for the last year.

The thing is, when you start to see salaries being used as political capital you know there is trouble ahead.... just think Gerald Corbett of Railtrack or Cedric Brown of the old British Gas.

So what happened after the last forensic analysis of a political hot potato?

Well, we had National Rail, continued failure of the rail network, a huge bill to ‘get it back on track’ and we’re still paying for it today with an 8% rise in fares from January. At least Cedric Brown got off lightly, after all I can think of worse indignities than having a 30 stone pig named after the chief pantomime ‘villain’.

But ultimately the backdrop to all of this, Ofgem included, is one of uncertain energy markets. The dominant energy suppliers are going to come under ever greater social and political pressure to soak up more of the cost of energy price volatility. On top of that we are moving into a railtrack/network rail scenario where we have untold sums of money required to overhaul the energy networks and make them fit for purpose (let alone find some way of replacing all those nasty fossil fuels that Mr Huhne so despises).

So political pressure, social pressure, a need for huge investment and an angry media on one side and a set of commercially minded businesses on the other.

Undoubtedly the pressure will be focused on the domestic arms of the energy suppliers and the disclosure of and impact on householders will be the clear priority (and vote winner). After all, the residential sector has a very strong pressure group in the form of the British media, whereas the business community doesn’t. There is a much greater subtlety to the influence commercial enterprise can have than a screaming Daily Mail headline.

So one sadly predictable scenario is that business energy prices end up subsidising residential energy and taking the lions share of new investment costs, not to mention having to carry the burden of green taxes.

So no hope then? Well no, you can vote with your feet and make sure that even with the backdrop of rising prices and a future of uncertainty there will always be a best deal out there... it’s good to be in control.