MSE News: The big six energy suppliers say no price cuts

Windmill_Farmer

The energy companies arel ike a criminal in the dock, their story changes every time their last story has been proven false.

property.advert

Windmill_Farmer wrote: »

The energy companies arel ike a criminal in the dock, their story changes every time their last story has been proven false.

Quite right.

There is an underlying problem though and that is that the average consumer has no way of being able to understand the complexities of the market as a whole. If you remember the Guiness trial, the recommendations were that such complex trials be overseen, not by juries, but by specialists or judges only. Essentially, the subject is too complex for the average juror. So it is with the energy markets. If a consumer cannot understand what a derivative is, nor a forward position or the workings of the swaps market, then you cannot begin to explain. Your average consumer cannot work out which is the best bank account !

Ofgem needs people who actually know what is going on. Most likely front/mid office or product controllers from the industry and not party connected generalists.

1carminestocky

Another complication to all this is there will be many an unemployed ex-Govt Minister mid-21010 looking for a cushy number on the board of one of the UKs largest companies. Of course, the Big 6 would come under this description. There's no way any of them will rock the boat with ANY potential future employer so close to them having to look for work. In UK business at the moment, it's basically jamboree time.

Mazio_2

You have to also think that with alot of properties getting better insulation and energy efficient appliances most will not use the same amount of energy so they will not get the profits they require.

Also if the long range weather forecast is for a mild winter they will not be happy bunnies remember last year was a hard winter.

So one way of keeping profits up is to maintain prices high for consumers as wholesale prices drop its not too complecated really only the utility companies need to make it seem so.

mech_2

Windmill_Farmer wrote: »

Nothern Ireland is cutting it's prices by a further (miserly) 5% why not the UK companies?

http://www.rte.ie/news/2009/0915/electricity.html

Hang on though, that's electricity. You're looking at gas in the graph you included above.

You want this story: http://www.rte.ie/news/2009/0910/gas.html

20%!!

Though I have a feeling NI prices were much much higher than ours in the first place. Interesting though.

OFGEM actually seem to be in on the act look at the wholesale costs in fig 2.2 in this report, why doe it not reflect the huge drop I show in the graph above?

Hedging. It smooths and delays the changes in the prices on the graph. Still, the red line on Ofgem's graph, indicating the gross margin, is at around the highest extent it has been in the past 6 or 7 years. And it will go up at the same rate as the "other costs and VAT" line is coming down so long as: a) retail prices aren't reduced and b) winter wholesale prices stay roughly the same as they are now.

But that's why Ofgem can't do a lot except make predictions at this point, because they can't prove there won't be a sudden increase in wholesale costs. Though that seems rather unlikely to happen at the moment, any forecast is subject to uncertainty - it's a guess. They can only put real pressure on the utility companies in 3 months when the next report is published and predicts with some level of confidence that the utilities will already have been making record profit margins.

ConsumerAndy

Can't believe that this is making the news AGAIN.

We, as consumer, deal with the Retail arms of these businesses. They also have other operations (running the electricity network for example). Some of these companies RETAIL businesses are not making a profit (E.ON for example) and others are making little profit.

OFGEM prohibits the companies from subsidising the retail part from other parts of the company which are making a profit. This is to stop them from having a competative advantage. Imagine Virgin offering free train travel for a month for all, but they use the money from Virgin Atlantic/money/cola to do it. They would not be allowed.

Another factor is people who are not paying their bills. One company has £70 million of 'bad debt' - people and companies who have not not paid for what they have used. Like shoplifting, it is the rest of us who pay for the crooks by having to pay higher prices.

So, yes gas etc has gone down, but the debt has already mounted up. If you ran a company (which is making no profit) which had bought X at £100 per unit last year (and your supplier has since started selling them to you at £75), you wouldn't start selling that original stock at less than £100 would you? Unless you have a hotline to the administrators of course.

Mazio_2

ConsumerAndy wrote: »

So, yes gas etc has gone down, but the debt has already mounted up. If you ran a company (which is making no profit) which had bought X at £100 per unit last year (and your supplier has since started selling them to you at £75), you wouldn't start selling that original stock at less than £100 would you? Unless you have a hotline to the administrators of course.

If I have understood correctly then that argument can be turned around how come they can increase prices in a few weeks when they bought at the lower price but can not decrease for 12 months?

Also do they remove the shareholders cut before showing profits?

ConsumerAndy

Hi Mazio, The Shareholder one is easy. Shareholders have shares in the entire worldwide group, not the UK Retail portion. The Retail businesses are running at a loss before dividends are paid.

Regarding price, it is a difficult concept as gas is invisible and the price was set months ago, even before it was extracted from the ground. You pay your milkman a price that you knew about months ago even thought the milk didn't come out the cow until yesterday.

Again, imagine you run a company. Your supplier puts their unit price up X%. If you pass on that %age increase to your customers, you will lose them to your competitors, so you put up your prices less, but as a result (after operating costs) you actually make a loss on that product. Eventually your supplier puts their prices down again but you will maintain a higher price until you have cancelled your debt. Alot of companies e.g. Supermarkets can afford to sell items at a loss (loss leaders) as they are making huge profit on other items, but Energy companies have only a few things to sell and their prices are linked.

(Actually, that's comething for another thread - I spend more on food than I do on gas/electric, but no one is up in arms when Tesco announces mega-profits. Why not?)

The_Economist

property.advert wrote: »

Quite right.

There is an underlying problem though and that is that the average consumer has no way of being able to understand the complexities of the market as a whole. If you remember the Guiness trial, the recommendations were that such complex trials be overseen, not by juries, but by specialists or judges only. Essentially, the subject is too complex for the average juror. So it is with the energy markets. If a consumer cannot understand what a derivative is, nor a forward position or the workings of the swaps market, then you cannot begin to explain. Your average consumer cannot work out which is the best bank account !

Ofgem needs people who actually know what is going on. Most likely front/mid office or product controllers from the industry and not party connected generalists.

If it was all done in plain English they probably wouldn't get away with half of what they do now.
You say there is an underlying problem though and that is that the average consumer has no way of being able to understand the complexities of the market as a whole.
Its all jargon just to confuse people in my view. As i say plain English.

Indignant

Hi All,

Call me Para-Cynical, but I think this a great wheeze by the big energy companies to get us little people to sign up to uncompetitively priced fixed price contracts, with hefty exit penalties, just in case some of the smaller players come up with a more competitive energy deals, the majority of us will be stuck in a fixed price deal.

These price rises of course will become self fulfilling, as it will be demand led, as people show their willingness to pay higher prices through fixed price deals and therefore suppliers will charge based on these higher prices...The cost of providing the energy will then start to have very little bearing on the prices actually charged.

Of course, the energy companies will have a stream of excuses as to why prices don't reflect costs, but we all know why....They will charge what they can get away with charging ....it's as simple as that!!!

The idea of a regulator was to represent the consumer as a collective against the power of huge companies in order to get a fairer deal.
Unfortunately at present we have a 'toothless' regulator which can only 'ask' and not force the energy companies to charge fairer prices and the Government has up to now not stepped in to redress the balance.

The only people who will benefit are the shareholders of these companies and of course the people who will suffer are the consumers!!

Surprise...Surprise!!!


Perfect Competition is a great thing in theory......Shame it does not exist in Real Life