Understanding trends in energy prices: Supply Market Indicator

How are energy prices set?

In Britain’s energy market, suppliers compete on price and service to win customers. Suppliers face a number of different costs in supplying gas and electricity. In the price they charge consumers they will seek to cover these costs and achieve a surplus. This is their pre-tax margin, out of which they make their profit.

The only part of the energy bill that we directly regulate is that part associated with running the energy transportation networks – the pipes and wires that deliver gas and electricity to consumers. We regulate the revenues of network companies because these are monopoly businesses, and so not subject to competition. We allow these companies appropriate funding to invest in and run their networks while delivering value for money for consumers.

The profit that suppliers make is not an entitlement. Instead, suppliers need to earn it through the service they offer and how efficiently they manage their costs.

What was the Supply Market Indicator?

To improve transparency around what is driving how much consumers pay for their energy, we publish regular information on trends in suppliers’ costs and profits. Historically, this has comprised both analysis of suppliers’ realised costs as reported in their financial statements, and our supply market indicator (or SMI).

The SMI was our 12-month forward look at cost trends. It used information on wholesale prices, network charges and the charges associated with government obligations to estimate the annual cost per customer faced by a typical large supplier to deliver gas and electricity. It also included an estimate of an average bill, and used this to derive an estimate of a typical large supplier’s pre-tax margin for the next 12 months.

You can find out how the SMI was estimated in our Methodology for the Supply Market Indicator. Links to historic charts produced as part of the SMI are available in the publications and updates list below.

Our review

In May 2015 we suspended our monthly SMI publication to carry out a review of our approach. Following this review, we have now published a consultation on how the SMI should be replaced. We are seeking your views on the proposal described in that document, before making a decision on how to replace the SMI later this year.

Publications and updates

  • Published: 3rd Aug 2016
  • Closing: 14th Sep 2016
  • Consultations & responses
  • 1 Associated documents
In May 2015 we suspended our monthly supply market indicator (SMI) publication to review of our approach. We're now seeking your views on how we should replace the SMI.

  • Published: 30th Apr 2015
  • Data and statistics
  • 13 Associated documents
Data published as part of our Supply Market Indicator (SMI) between March 2014 and April 2015.

  • Published: 30th Apr 2015
  • Data and statistics
  • 2 Associated documents
A methodology report explaining the approach we have taken to produce our Supply Market Indicator (SMI).

  • Published: 18th Mar 2015
  • Expected: Mar 2015
  • Closed: 22nd Apr 2015
  • News and blogs
  • 0 Associated documents
Upcoming Consultation: we are currently reviewing Typical Domestic Consumption Values (TDCVs) for gas and electricity.

  • Published: 10th Jun 2014
  • Open letters & correspondence
  • 1 Associated documents
This is our letter calling on large energy suppliers to explain the impact of falling wholesale prices on customer bills. You can view the responses received to the letter below. "Dear, Wholesale Costs

  • Published: 11th Oct 2013
  • Data and statistics
  • 0 Associated documents
This webpage details the updates we have made to our Supply Market Indicators.

  • Published: 3rd Oct 2013
  • Data and statistics
  • 0 Associated documents
As of October 2013 we have improved the presentation of our Supply Market Indicators. Instead of publishing PDFs for each weekly update, we will update the interactive graphs that appear on the main SMI webpage.

  • Published: 25th Sep 2013
  • Data and statistics
  • 1 Associated documents
For this update, the snapshot net margin is £65 and the rolling average net margin is £65.

  • Published: 20th Sep 2013
  • Data and statistics
  • 0 Associated documents
The current breakdown of the dual fuel bill.

  • Published: 18th Sep 2013
  • Data and statistics
  • 1 Associated documents
For this update, the snapshot net margin is £65 and the rolling average net margin is £65.

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