British Gas Huge profits

mech_2

magyar wrote: »

I agree that if you divide profits by customers you end up with that number. However the general public don't seem to realise this is actually forced onto the Utilites by Ofgem; who insist that you have to have separate upstream/generation and supply businesses.

This means that you cannot cross-subsidise, and so the upstream businesses are what's making this true profit. The margin on a single customer is indeed about £40-60 a year to the supply business.

Ofgem do not force any company to make a profit. If British gas made a loss and the group as a whole still made a profit, that would be cross subsidy. Nothing regulatory prevents that from happening. I don't see this as a good reason for underplaying the profit per customer.

Plus they could also effectively cross subsidise, if they actually wanted to, by selling gas produced by Centrica to its downstream business at below-market rates. This would have tax benefits for the group as profit on gas production is more heavily taxed than the resale side. Look Centrica's effective tax rate in 2009 vs 2008 when the gas production side was more profitable.

Yes, but BGB would include both SMEs and large users in one pot. The corporates probably only account for 1-2% profits whereas the SMEs are probably in the 8-9% bracket.

Good point. Didn't think of that.

mech_2

Cardew wrote: »

Mech,

Two points.

BG make £38 per household! not per account. They supply to 15.8 households; some of those households are dual fuel, some electricity only and some gas only.

It was wrongly reported in the media all over the place as households, but it is 15.8 million accounts. Read the figures on page 15 of their preliminary results. There's no mention of dual-fuel accounts. Gas and electricity accounts are assessed separately. If it were households, that would be upwards of 60% market share which is clearly wrong.

Secondly as pointed out in post#10 Centrica simply cannot cross-subsidise BG. This is surely a sensible regulation as allowing BG to undercut all other companies would destroy any competition.

Of course they could cross subsidise. There's just no incentive. The only regulatory requirement is of the holding of licenses. There are no price controls in the market now and no rules as to how they manage their finances.

magyar

Mech, sorry to disagree but you really cannot cross-subsidise. I will have a word with some colleagues in the morning and see if I can find the legislation behind that.

Another point of course is that you need these profits to be able to drive new investments. Ultimately these will too eventually be paid for by the consumer, but over 20-50 years.

Cardew

mech wrote: »

It was wrongly reported in the media all over the place as households, but it is 15.8 million accounts. Read the figures on page 15 of their preliminary results. There's no mention of dual-fuel accounts. Gas and electricity accounts are assessed separately. If it were households, that would be upwards of 60% market share which is clearly wrong.

Play the short video in this link.

http://news.bbc.co.uk/1/hi/business/8535850.stm

SwanJon

magyar wrote: »

Mech, sorry to disagree but you really cannot cross-subsidise. I will have a word with some colleagues in the morning and see if I can find the legislation behind that.

If you find it, please tell SSE
http://staging.hemscottir.com/ir/sse/ar2009/ar.jsp

They report Generation and Supply as a single business unit.

karatedragon

Won't be a penny of mine next year.

Have just left British Gas. Both for utilities and Boiler service cover.

C_Mababejive

I'm quite happy with BGs profits.
Considering the size of the business its a fair return. The business is investing a whole lot of money to help ensure safety and continuance of supply.

I'm also a shareholder and have been for a long time.

We should be applauding Centrica...A Great British SUCCESSFUL company.