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

Bark01

Mazio wrote: »

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?

Most companies have at least a six week window for turning round prices (not BG & E-On though).

The rise in whole sale price over the last few years was steeper than the increases passed onto consumers.

The drop in wholesale price at the moment is only predicted to be short term, the 18 month forward curve that suppliers use to hedge shows wholesale price to rise significantly.

If you want cheap prices go for one of the newer companies: OVO or first utility. They are the only companies who can directly pass on todays wholesale price to customers. Most if not all of the big six still have a load of last years energy to sell off.

A wholesale price tracker product was launched a year or two ago by one supplier (npower i think) and hardly anybody signed up to it. I predict there will be a small number of similar products launched soon due to media/OFGEM pressure for cost reflective products and the fact that we are at the bottom of the market.

Mazio_2

I don’t have a problem with any company making money its what keeps most of us employed the problem is this commodity is essential to live at the present time and should not be entrusted to foreign companies who’s sole objective is to make money for their shareholders and not to keep prices fair for a captive market.

I understand the arguments about the length of time they buy upfront but:-

1) 18 months time increase the price not keep it high now just encase
2) Which of the utility companies made a loss
3) Why would foreign companies buy into a loss making company in the UK
4) Make the tariffs simple so we can understand them
5) Invest more in the UK infrastructure for the future

Again the UK government should also help with this and should not be left solely to market forces.


My own view is they should never have been sold 100% and then tried to regulate with inadequate powers but its to late now and we are paying the price.

1carminestocky

Bark01 wrote: »

Most companies have at least a six week window for turning round prices (not BG & E-On though).

The rise in whole sale price over the last few years was steeper than the increases passed onto consumers.

The drop in wholesale price at the moment is only predicted to be short term, the 18 month forward curve that suppliers use to hedge shows wholesale price to rise significantly.

If you want cheap prices go for one of the newer companies: OVO or first utility. They are the only companies who can directly pass on todays wholesale price to customers. Most if not all of the big six still have a load of last years energy to sell off.

A wholesale price tracker product was launched a year or two ago by one supplier (npower i think) and hardly anybody signed up to it. I predict there will be a small number of similar products launched soon due to media/OFGEM pressure for cost reflective products and the fact that we are at the bottom of the market.

This is the part I don't get. Why don't the Big 6 just buy the energy now? You know, whilst it is cheap. You can't have it both ways - you suggest the reason we are paying these prices now is because they bought the wholesale energy at higher prices LAST YEAR. So, who's buying this cheap energy now? I'm assuming it has to be the Big 6. So, that does beg the question, why are they now suggesting that retail prices are actually going to rise as opposed to fall?

ConsumerAndy

Mazio,
1) 18 months time increase the price not keep it high now just encase - Most trading arrangements buy long-term, to get better deals, just like us buying in bulk. Like The stockmarket, this is done on predictions, trends etc. If oil prices shot up a few years ago, the predictions could have been that they would continue to and so the utilities would have bought in bulk at what would have been a good rate at the time. Since that deal, the proces have fallen.
2) Which of the utility companies made a loss. EON's RETAIL business (the bit we buy gas and electric from) did. EON UK is also made up of Central Networks, Energy Services, Generation and probably some other bits.
3) Why would foreign companies buy into a loss making company in the UK. In the EON example, the UK business as a whole made a profit, the Retail section made a loss (and has done for about 3 years). It is Ofgem that stops money from the profitable bits from subsidising the others. EON bought Powergen about 6 years ago and the Retail business was profitable then.
4) Make the tariffs simple so we can understand them. Agree.
5) Invest more in the UK infrastructure for the future. Agree. BUT for more money to be invested in the networks, more money has to be generated from customers. Again Ofgem makes the network operators (e.g. Central Networks, part of EON) work as a standalone business so the profitable bits in the UK can't subsidise them. Customers of a companies network operator are different from the same companies retail customers (which is one reason that Ofgem forced businesses to be separate so network customers didn't think they had to be retail customers too).

1carminestocky,
The big6 will be buying energy now BUT for the future and also be having to clear the debts they have built up (see my last two posts for why they have these debts but in brief it is because they didn't pass on the entire increased cost of gas to the consumer and because so many people/companies have defaulted on their payments).

The _economist, Many think Ofgem is a very poor regulator and is making things more complex (e.g. price rises wouldn't be so much of a problem is it wasn't for the business separation rules. Without them, profitable bits of the business could subsidise the Retail bits) and some of the energy companies are probably getting fed up with Ofgem trying to expand its' powers. One of the top guys in Ofgem resigned a few weeks ago because he disagrees with what they are trying to do. I have a link to this but as a new user I can't post comments with links. Look for stories around 13 June 2009 for this.

mech_2

ConsumerAndy wrote: »

Most trading arrangements buy long-term, to get better deals, just like us buying in bulk. Like The stockmarket, this is done on predictions, trends etc. If oil prices shot up a few years ago, the predictions could have been that they would continue to and so the utilities would have bought in bulk at what would have been a good rate at the time. Since that deal, the proces have fallen.

A long-term comparison between between UK retail prices and any set of wholesale energy prices you care to choose show that this level of lag just doesn't exist. What were the price falls back in March/April in response to then? Wholesale prices had peaked only 6 months or so beforehand.

2) Which of the utility companies made a loss. EON's RETAIL business (the bit we buy gas and electric from) did.

British Gas Residential didn't. It sounds like EON have a problem. But why haven't British Gas' retail prices fallen then? Is it not supposed to be a competitive market?

EON UK is also made up of Central Networks, Energy Services, Generation and probably some other bits.
3) Why would foreign companies buy into a loss making company in the UK. In the EON example, the UK business as a whole made a profit, the Retail section made a loss (and has done for about 3 years). It is Ofgem that stops money from the profitable bits from subsidising the others.

This is nonsense. If one part of the company made a loss and another part or parts made enough so that the headline figure showed a profit, then that is cross-subsidy. How else would cross-subsidy work? And why does it not seem to be necessary for British Gas?

Bark01

Britsh Gas are in a league of their own because of their size and because they are the only supplier to not have a set of "home" regions. The suppliers make the most money and certainly the largest margin out of their core customers (customers who don't switch and don't seek the cheapest tariff) Bg have the largest number of core customers by little more than default.

ConsumerAndy

mech, not nonsense I'm afraid. Overall group profit (or regional profit) is different to one part of the business subsidising another.

Yes, EON does have a problem which is why they changed their director of Retail (Nick Horler who went to Scottish Power) and have announced huge spending cuts (and unfortunately job cuts).

Gerrard_8_lfc

Bark01 wrote: »

Britsh Gas are in a league of their own because of their size and because they are the only supplier to not have a set of "home" regions. The suppliers make the most money and certainly the largest margin out of their core customers (customers who don't switch and don't seek the cheapest tariff) Bg have the largest number of core customers by little more than default.

Slightly true look at the profits EDF and Southern make compared to BG Residential they are streets ahead last time I looked.

BG may have the biggest customer base for Gas and Electric but they do not have the biggest profit margin.

BTW guys have EDF cut there rates in france yet ?

mech_2

Bark01 wrote: »

Britsh Gas are in a league of their own because of their size and because they are the only supplier to not have a set of "home" regions.

How does that help their margins?

The suppliers make the most money and certainly the largest margin out of their core customers (customers who don't switch and don't seek the cheapest tariff) Bg have the largest number of core customers by little more than default.

We're not talking about absolute profit. We're talking about margins. Market share isn't really relevant at the scale we're talking about with the Big 6. And of course they all have core customers. If someone had never switched since before privatisation they would still be with the incumbent electricity supplier in their region.

Anyway it still wouldn't explain why British Gas can't reduce their prices.

mech_2

ConsumerAndy wrote: »

mech, not nonsense I'm afraid. Overall group profit (or regional profit) is different to one part of the business subsidising another.

How? In what way? How does part of the business sustain a loss without the money coming from elsewhere? I looked and none of the companies other than Centrica seem even to report separate profit for wholesale and retail arms - transparent as mud. And I don't see what stops them selling their own electricity to themselves at below-market rates. Wouldn't that constitute cross-subsidy?

One has to wonder why the Big 6 would struggle so much to gain market share if they only made a loss from any customers they gained.

Yes, EON does have a problem which is why they changed their director of Retail (Nick Horler who went to Scottish Power) and have announced huge spending cuts (and unfortunately job cuts).

Well then. It isn't an industry-wide problem after all then is it?

On the subject of bad debts I found this in SSE's preliminary results to March 2009:

As at 31 March 2009, the total aged debt (ie debt that is overdue by more than six months) of SSE’s domestic and small business electricity and gas customers was £72m, compared with £70m in March 2008, during which period the number of customers increased by over 7%.

That doesn't seem like a lot to me in the context of £8.5 billion of revenue. Does EON operate so radically differently?