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UTILITY WEEK | 18Th - 24Th JULY 2014 | 21 Finance & Investment L ast month we saw Ofgem's energy market indica- tor estimate that energy companies would be making more than £100 profit supplying energy to a typical customer. On the same day, in kicking off a Competition and Markets Authority (CMA) investigation into the energy market, the regulator rightly highlighted that there is a trust problem in the sector. For me, this trust problem is not served well by an indicator that is detached from actual profits. In 2011, Ofgem's indicator was at one point sug- gesting suppliers' profits would be £125, yet the actual audited profit figures showed margins of £30 per customer. The problem is that the indicator is a limited model. It is based on a number of simplistic assump- tions about things such as how much energy customers will use and which tariff they choose, and is ultimately a hypothetical snapshot in time of a variety of costs which move around a lot and should really be judged over a longer period. Reading too much into the indicator is a little bit like seeing a picture of Wayne Rooney scoring and assuming England did well at the World Cup: it's a guide but by no means the actual outcome. The reality is that Ofgem's State of the Market Assess- ment analysed actual company accounts. This showed annual dual fuel profit per household to be £8 in 2009, £35 in 2010, £30 in 2011 and £53 in 2012. Our audited accounts show we made around £48 per household customer in 2013/14. Energy supply is not and has never been a high- margin industry. I welcomed the CMA referral because customers need to know they can trust energy markets. And suppliers must do their bit to demonstrate this. That's one of the reasons we've frozen standard prices right through the inquiry, until at least January 2016. This is a long-term commitment which should also be judged over the longer term. We are a business that has to focus on the longer term. This means short-term "snapshots" will never tell the whole story. Will Morris is group managing director of SSE's Retail business "Ofgem's indicator was at one point suggesting suppliers' profits would be £125, yet the actual audited figure was £30 per customer." Blog Will Morris "The trust problem is not served well by an indicator detached from actual profits" In the lead-up to May's general election, utility share prices may well prove volatile, as was the case in the summer of 1992 when the latest opinion poll was the key share price determinant. For National Grid, however, volatility is less likely. Its far-reaching UK regulation set- tlement and its recovering US returns have been more important drivers. Nigel Hawkins is a director of Nigel Hawkins Associates, which undertakes investment and policy research Key financial Data Operating profit Year ended 31 March (£m) 2014 2013 % change UK electricity transmission 1,087 1,049 4 UK gas transmission 417 531 (21) UK gas distribution 904 794 14 US regulated 1,125 1,254 (10) Other activities 131 11 n/a Group total operating profit 3,664 3,639 1 Other selected financial information Year ended 31 March (£m) 2014 2013 % change Depreciation and amortisation (1,416) (1,361) (4) Net finance costs (1,108) (1,124) 1 Taxation (581) (619) 6 Share of post-tax results of joint ventures 28 18 56 Earnings attributable to minority interest 12 (1) n/a Earnings attributable to equity shareholders 2,015 1,913 5 Other selected financial information Year ended 31 March (£m) – constant currency 2014 2013 % change US regulated operating profit 1,125 1,216 (7) Other activities operating profit 131 15 n/a Group total operating profit 3,664 3,605 2 Timing adjustment 42 (17) n/a Major storm adjustment - 133 n/a Operating profit excluding major storms and timing 3,706 3,721 - Depreciation and amortisation (1,416) (1,347) (5) Net finance costs (1,108) (1,107) - national GriD share price, 2014 1000p 880p 860p 840p 820p 800p 780p 760p Jan 2014 Apr Feb Mar May Jun Jul