Energy firms adding £242 to energy bills as profits soar

A report reveals that energy firms’ operating costs contribute £242 to customers’ bills on average, while supplier profits are set to soar by £140 million due to changes in the Ofgem price cap

Energy companies‘ operating costs are making up a substantial portion of customers’ bills.

On average, these operating costs add £242 to each customer’s annual energy bill, accounting for approximately 13% of the total bill, according to a report from the Warm This Winter Tariff Watch.

The report indicates that energy firms are allocating a considerable chunk of their operating costs to marketing activities.

This category encompasses expenses related to sponsoring football teams, event venues and the creation of television adverts.

According to the report, the cost of marketing activities amounts to roughly 11% of their overall operating expenses, charities have said.

In contrast, spending on maintaining customer contact centres, a crucial aspect of ensuring customer satisfaction accounts for around 12% of their operating costs.

Ofgem allows energy companies to adjust these costs for inflation.

Over the past six years, this inflation-driven increase has amounted to 37.5%, rising from £176 annually in April 2017 to £242 annually as of October 2023.

However, the authors of the Tariff Watch report argue that this approach lacks transparency and call for a reevaluation of how these operating costs are factored into customers’ bills.

A spokesperson for Ofgem said: “The standing charge is covered by the price cap, which sets a ceiling on the total amount households can be charged.

“Suppliers have always been free to structure their tariffs as they see fit and we know some suppliers do not have a standing charge. However, we continue to keep the issue and how costs are passed on to customers under review.

“It remains a complex issue with a recent impact study showed that moving costs from the standing charge to a higher unit rate would result in winners and losers – and could be particularly damaging for the most vulnerable consumers. This includes those who are unable to reduce their energy usage because of age, disability or reliance on medical equipment.”

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