Energy News

Ofgem hires forensic accountants to probe “big six”

Wednesday 24th August, 2011

By Martin Fagan - editorial@consumerchoices.co.uk

Ofgem’s promised investigation into the prices of the “big six” gets underway

As part of an investigation to see if energy firms are justified in charging consumers higher prices, energy regulator Ofgem has announced the appointment of forensic accountants BDO to investigate the “big six”.

It has long been Ofgem’s suspicion that the “big six” energy suppliers - British Gas, E.ON Energy, EDF Energy, Scottish Power, Npower and Scottish & Southern Energy, who between them supply 99% of UK energy to consumers - understate their retail profits in order to defend inflation-busting price hikes.

Ofgem says BDO will provide recommendations on how best to improve accounting disclosures by energy suppliers. BDO will look at trading profits, wholesale prices and how the energy firms hedge against price fluctuations by trading energy futures.

In appointing BDO, the regulator said it hopes to gain an independent accountant's view on how to improve transparency over pricing decisions made by the power companies and give consumers more clarity over how retail prices relate to wholesale energy costs.

In all price rises over the past few years, energy companies have always used the excuse of rising wholesale prices to justify increasing retail prices.

But the seemingly co-ordinated way the “big six” raise prices - which leaves consumers with little competitive choice when switching supplier - has raised Ofgem’s suspicion that the “big six” could be indulging in cartel-like behaviour.

“This follows Ofgem’s review of the retail market earlier this year, which identified the need to improve accounting transparency to give consumers more clarity about how retail prices relate to suppliers other costs,” said a spokesperson for Ofgem.

BDO will report to Ofgem around the end of the year. Ofgem will then consider the report and publish high level findings and any recommendations for further action.