The see saw of corporate profit
Yesterday, Ofgem release its consultation on Improving the Reporting Transparency of Large Energy Suppliers. James Constant takes a look at the consultation and what it means for transparency on energy supplier profits.
When the transfer price the supply business pays the generation business shifts, so does the picture on profits.
We’ve said before that, working in the B2B sector, naturally we want to see businesses do well and make a profit to provide reward for their staff, investors and customers. However, we also believe that transparency on profits is essential, a fact that has previously been recognised by Ofgem, which has mandated that the Big Six energy supplier should publish their accounts.
- all suppliers should report to the same year end to ensure transparency of comparison. Ofgem now does ‘not intend to take forward this recommendation’.
- an independent auditor should provide opinion on the statements. Ofgem now will get an opinion, albeit not from auditors and maybe just for the initial year.
- the statements be reconciled to IFRS (International Financial Reporting Standards). Ofgem now only requires that the supplier statements mirror their group accounts.
- the businesses recognise sources of additional potential profit by reporting trading and risk results. Ofgem now only requires the suppliers to fill out a checklist of activities they undertake.
- it would undertake further work to understand the critical issue of the transfer price between the generation and retail arms of the vertically integrated business. Ofgem now does ‘not intend to take forward this recommendation’.
- exceptional items on the supplier’s account were given greater definition. Ofgem now will settle for the information held in the suppliers’ group accounts.
- a consistent profit base for reconciliation was created. Ofgem now only requires the information held in the suppliers’ group accounts.
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