BIG Six energy suppliers including SSE and ScottishPower have seen the total profits they make in the retail market fall for the first time since 2014 and lost market share as customers switch to smaller competitors, the regulator has found.

However, Ofgem said while competition is benefitting consumers in the UK more than half of households remain on poor-value default deals.

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“We have witnessed many positive developments in energy over the last year, but the market is still not delivering good outcomes for all, especially the vulnerable,” said Ofgem’s chief executive Dermot Nolan.

The latest state of the energy market report from Ofgem found ScottishPower, SSE, EDF, British Gas, npower and E.On lost 1.4 million customers in total in the year to June. They saw their combined market share fall by around five percentage points.

Smaller players now have a total of around 25% of the market.

Ofgem found the total profits made by from the sale of gas and electricity to households by the Big Six six fell to £0.9 billion in 2017, from £1bn the preceding year.

However, Ofgem said 54 per cent of households were still on a poor value default deal rather than a fixed price contract in April compared to 57% in October last year.

Ofgem warned that many customers in vulnerable circumstances, including those on prepayment meters, continued to be the most likely to be paying over the odds for their energy.

Energy and Clean Growth minister Claire Parry said the findings strengthened the case for the price cap that is being imposed on default tariffs, in spite of claims from power firms that it will discourage people from switching suppliers.

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The report found wide variations between members of the big six.

Some 69% of customers with Scottish Hydroelectric owner SSE were on what Ofgem classed as default tariffs in April compared with 72% in October.

The percentage of Scottish Power accounts on default tariffs increased to 45% in April from 39% in October.

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These include customers placed on one-year deals when fixed price arrangements end and those on standard variable tariffs.

A ScottishPower spokesperson said the number of its customers on standard tariffs had remained consistent at around 38%.

Regarding market shares, Ofgem noted: “The former incumbent electricity suppliers exhibit disproportionately high market shares for their historic legacy regions. This varies between SSE’s 59% in Northern Scotland and npower’s 18% in Yorkshire.”

It said the proposed merger of SSE’s retail business with npower will result in the UK market becoming more concentrated. There will be two large suppliers of a similar size controlling almost 50% of the market followed at some distance by three larger suppliers and a fringe of many smaller suppliers.

The Competition and Markets Authority cleared the merger plan on Wednesday.

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The number of suppliers increased to 73 last year from 60 in the preceding year. However, Ofgem said small and medium sized suppliers are struggling to expand. Firms face big increases in regulatory costs when they cross the 250,000 customer threshold.

Ofgem said competition works better in the non-domestic market, but the UK’s small and micro businesses pay much more on average for their energy than larger firms.

The report noted that profit margins in the domestic business varied between big six members.

ScottishPower’s margin fell to 0.5% of sales in the latest year from around 5%.

SSE’s remained stable at 7%, compared with 8% for British Gas.

Scottish Power and SSE appear to have benefited from their hefty investment in renewables. They achieved profit margins of around 20% in their power generation businesses in 2017, compared with an average of 10% for the six largest generators.

Ofgem noted: ”Conventional generator profitability has fallen significantly in recent years while renewable generation profitability has increased and become significantly higher than conventional profitability.”

The Beast from the East in March increased heating demand across the country to its highest level since 2010, but electricity and gas networks were resilient with sufficient capacity to meet demand, Ofgem said.