BDO: Energy companies’ accounts should be clearer

ACCOUNTING METHODS used by the UK’s largest energy companies are fair but discrepancies in information about profits makes it hard for customers to understand bills and compare tariffs, a review by BDO has concluded.

Methods used to compile financial information in companies’ annual “energy accounts” were “broadly fair and appropriate”, the review conducted by BDO and commissioned by energy regulator Ofgem, found.

But in an effort to make information about utilities’ financial results easier to understand Ofgem said it wanted to make companies use the same accounting standards and methodologies when producing their profit measures.

Ofgem will consult on its proposals.

The proposed changes are part of wider review of the energy market. Ofgem has proposed simpler tariffs, new rules to improve bills, annual statements and clearer price increase notifications.

Ofgem’s chief executive Alistair Buchanan said: “Energy has got to become more open and transparent and our reforms will make suppliers’ financial information much clearer. The fact that independent accountants BDO have found suppliers’ financial information to be fair and appropriate should also give consumers a degree of reassurance.”

“Suppliers now need to build on this report and make the radical changes needed to restore consumer trust in energy suppliers. The real win for consumers will be when suppliers provide consumers with simple tariffs and clearer bills and annual statements as proposed by Ofgem.”

Ofgem required companies to publish annual energy accounts, known as segmental statements, which show the profitability of generation and supply businesses following its Probe in 2008. The first full set of statements, covering 2009, contained a number of accounting adjustments which made the information more difficult to interpret. In response, Ofgem commissioned an independent review by BDO.

Utilities have been accused of profiteering after some announced double-digit price increases in the summer of 2011.

Related reading