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UK big six energy firms' 2018 supply profits sank as customers turned to smaller rivals

By Nina Chestney

By Nina Chestney

LONDON, Oct 3 (Reuters) - Profits from supplying gas and electricity at Britain’s big six energy firms sank by a combined 35 percent last year as they continued to lose customers to smaller rivals, a report by energy market regulator Ofgem said on Thursday.

Britain’s so-called 'Big Six' energy suppliers - Centrica's British Gas, E.ON, SSE, EDF's EDF Energy, Innogy's npower and Iberdrola's Scottish Power - have faced competition from more than 60 smaller firms, often offering cheaper prices.

In its annual state of the market report, Ofgem said the six companies had lost around 1.3 million customers and they served just above 70% of domestic customers as of June this year, down from around 75% in June last year.

Total domestic supply profits across the six largest firms, measured as earnings before interest and tax (EBIT), fell by 35% last year to 599 million pounds from 924 million pounds a year earlier. Profits fell 10% last year.

Their overall average profit margin, measured by EBIT as a percentage of revenue, fell to a nine-year low of 2.7%.

However, profit margins varied across the six companies.

British Gas had the highest at 7%. Scottish Power's was at more than 4% last year, up from just above 0% in 2017.

EDF Energy's profit margin also rose to nearly 2% from 0.9% a year earlier. E.ON's profit margin fell to below 0% from above 5% a year earlier, and npower had the lowest profit margin at nearly -4%.

The difference in margins is usually due to varying operating costs and the extent to which costs were passed onto customers.

Relative newcomer Ovo Energy is set to become one of the Big Six after striking a 500 million pound deal to buy SSE's retail arm last month.

E.ON is buying npower from peer Innogy but both have said they would look at all options for the business, leaving room for a sale, restructuring or winding it down.

Ofgem said energy bills are one of the largest single items of regular expenditure in Britain. Households and businesses together spend around 55 billion pounds a year on energy.

The average dual fuel energy bill for a typical customer with the large suppliers in 2018 was 1,184 pounds, up from 1,117 the year earlier.

Following government legislation, the regulator introduced a cap on energy prices for around 11 million customers on expensive default energy deals in January and estimates it has saved them around 1 billion pounds this year.

Ofgem added that it is still investigating an outage which disconnected 1.1 million electricity customers in August and will report on the causes in next year's report.

(Reporting by Nina Chestney; Editing by Kirsten Donovan)