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.
Hot on the heels of E.ON’s Rest Review for business energy customers, EDF Energy has unveiled its Business Customer Commitments. So what are they and what do they mean for your business?
Is the sky the limit for EDF's business energy customers? Image by LaurenTucker Photography via Flickr
Vincent de Rivaz’s speech at the EDF Energy Talk Power Conference, where he unveiled the new Business Customer Commitments, had three themes: 'Fair Value', 'Better Service' and 'Simplicity'. But beyond these three themes, as I see it, there were four main announcements:
1. Short-term contracts, with no termination fee, for start-ups.
There will be new ‘good-value fixed term contracts, lasting months rather than years’ for entrepreneurs and start-ups. Crucially, these contracts won’t have termination fees, which will give new businesses the flexibility they need while they’re growing. We think this is a fantastic decision by EDF; it could be a real game changer and is exactly what a many new businesses are crying out for.
2. Visi, a real-time energy dashboard.
EDF Energy previewed Visi, a new real-time energy dashboard service. It’s inspired by the energy monitoring system that EDF has developed for the Olympic Games, and the company hopes it will help larger businesses to educate and change the behaviour of staff when it comes to energy efficiency. Energy efficiency is of growing importance to all businesses as prices rise, so this is interesting, but the concept isn’t groundbreaking; other similar services exist, for example Carbon Trust Empower
3. Simplification of prices.
EDF already has a single unit rate for its small business customers, but Mr de Rivaz said that there would be further simplification. We’re a little cautious about this - simplicity is great, but not if it means higher bills. For some businesses, a simple single-rate tariff is ideal, but for others multi-rate tariffs or tariffs with different day and night/evening and weekend rates offer great value for money. (Which is why it’s so important to get an overview of the market and make sure the tariff you sign up to really does offer the best value for your business.)
4. Better bills
Mr de Rivaz also announced that EDF would be introducing a ‘far simpler bill’ which would bear the Plain English Crystal Mark. Having for worked for uSwitch, which has the Plain English Internet Crystal Mark, I can tell you that the Plain English standard really means something and isn’t easy to attain, so hopefully this will mean bills which are easy to understand, and, most importantly, easy to act on.
The Big Six (British Gas, EDF, E.ON, npower, SSE and Scottish Power) account for around 99% of all domestic energy accounts, but when it comes to business energy, it’s a different story.
It won't taste any less sweet because it's smaller... Image by Facundo Prámparo via Flickr.
There are plenty of smaller energy suppliers on the market, and many of them are competitive when it comes to price. However, according to DECC, their share of the domestic market is a tiny 1% and new research from our sister company, uSwitch, has found that only 52% of customers would switch to one for their home.
Ann Robinson, Director of Consumer Policy at uSwitch commented: “Unfortunately, when it comes to energy suppliers many consumers are caught in a trap – they’re unhappy with the Big Six, they like what smaller suppliers have to offer, but they’re too frightened to try one out.”
She added: “The fact is that smaller suppliers offer competitive prices and a genuine alternative to being with the Big Six. There is no risk of losing your supply, either while switching or at a later date. If anything happened to your supplier, Ofgem would step in so you would always be guaranteed supply.”
However, we’ve found that it’s a different story when it comes to businesses - 24% of our customers go with a supplier that isn’t part of the Big Six.
Why? Well, in the business energy market, beyond the Big Six you have suppliers that cater specifically for businesses, which is a real selling point. These suppliers may not have a big name or advertise on TV, but that doesn’t mean that they aren’t competitive, or that they don’t have a good pedigree or significant backing. For example, take Haven Power, which is part of Drax Power, one of the UK's largest independent power companies, or Gazprom, which is part of the Gazprom Group - the largest producer of natural gas in the world.
So if you’re thinking about your business energy contract, don’t think there are only six options and no competition. One of the Big Six may well be the best option for your business, but then again, it could be that the best combination of price and service comes from somewhere you weren’t expecting.
There’s 16 suppliers listed in our energy supplier directory if you want to find out more, or if that sounds like too much effort, give us a call on 0800 688 8568.
- The draft Energy Bill: a five-minute summary
- 60% increase in business energy costs as average turnover falls by 6%
- Business week in brief: 11th May 2012
- Ed Miliband and the Queen talk energy
- Interview with Steve Fitzsimons of new business energy supplier, Hudson Energy
- Business week in brief: 4th May 2012
- The see saw of corporate profit
- Business week in brief: 27th April 2012
- EDF Energy’s Business Customer Commitments: four key pledges
- Businesses buck the trend when it comes to smaller energy suppliers