The UK’s leading energy companies are to come under fresh scrutiny following the industry watchdog’s decision to appoint accountants to investigate how the so-called ‘Big Six’ suppliers calculate their profits.
Ofgem has named a specialist team from BDO to look at the hedging practises, trading profits and wholesale prices of Britain’s biggest power companies – British Gas, E.ON Energy, EDF Energy, Scottish Power, Npower and Scottish & Southern Energy.
The forensic accountants are tasked to determine whether the energy giants have justified higher prices by appearing to be less profitable at their retail arms.
Suppliers have argued that price rises are necessary in order to keep retail operations profitable.
In March, the energy regulator said it had evidence that the power companies increased prices in response to rising costs faster than they reduced them when costs dropped.
At the time, Ofgem chief executive Alistair Buchanan said: ‘The evidence clearly shows that for the first time, the companies did take advantage of a rising price environment in 2010.’
Ofgem said today it wanted the view of an independent accountant to improve transparency over the pricing policies of the energy companies and give consumers more clarity regarding the relationship between retail prices and wholesale energy costs.
The news comes a few days after the UK’s largest supplier, British Gas, increased average gas and electricity prices by 18 per cent and 16 per cent respectively.
Four of the other big six suppliers have also recently announced price hikes, with just EDF left to announce if it will also raise its prices.
The latest increases are largely blamed on a massive increase in the price of wholesale gas.
BDO’s investigation is estimated to last four months, with a report expected before the end of 2011. The energy watchdog will take into consideration any recommendations made by BDO before it publishes its own findings.
