MSE News: Npower cuts gas prices by 7%

thor

magyar wrote: »

The market for gas is actually about three years out.

Really that long? So if wholesale prices went up now we should not see the corresponding retail increase until 2013. Somehow I doubt that will happen. As thye have been getting away with it so brazenly I reckon the lag when going up will be a handful of months while when prices come down it will take years(and be smaller).

magyar

thor wrote: »

Really that long? So if wholesale prices went up now we should not see the corresponding retail increase until 2013. Somehow I doubt that will happen. As thye have been getting away with it so brazenly I reckon the lag when going up will be a handful of months while when prices come down it will take years(and be smaller).

It's not quite as simple as that, because you wouldn't buy your whole volume three years out, you'd buy maybe 25% three years out, 25% one year out, 25% a month out and then the rest in the month of supply. This is a process called hedging which means that the overall energy price is 'smoothed'.

The other complicating factor with gas is its interplay with electricity; since gas is sold to customers as fuel but is also fuel for many electric generating stations.

I'm not particularly defending the companies here: merely pointing out the situation is far, far more complex than most people think.

mattcanary

So why do you they put their prices up immediately (or almost immediately) when the wholesale prices go up, but take ages to adjust their prices when the wholesale price goes down?. Hedging or not, they are ripping off customers. If they bought at different prices, they could also hold off increasing their prices to their customers if they had any ethics whatsoever.
I'm sorry magyar, but your explanation defies all logic.

SwanJon

It's probably a lot more complicated than even Magyar's expalanation.

A few people have mentioned that domestic prices went up 'almost immediately', but I'm a bit lazy - can someone point this out to me? (graphs please)

Put yourself in their shoes:
Situation A - prices are rising, and you believe that this will continue. Do you buy lots now at current prices, or some now, and some later?
Situation B - prices are falling, and you believe this will continue. Do you buy lots now at current prices, or some now and some later?

mattcanary

But most of the supply would already be with the utility providers anyway if they hedge - meaning only a small proportion would be purchased at the higher price when the wholesale price goes up.

gmang

I'm with npower and got an email from them this morning.

[FONT=Verdana, Arial, Helvetica, sans-serif]Hello Mr Powell
We've dropped our standard gas prices for the average customer by around 7%*
which means our domestic gas customers will see a reduction averaging £50 on their gas bills. These cuts will take effect from 26 March 2010.
[/FONT]
All well and good, but I'm not Mr Powell![FONT=Verdana, Arial, Helvetica, sans-serif]
[/FONT]

SwanJon

mattcanary wrote: »

But most of the supply would already be with the utility providers anyway if they hedge - meaning only a small proportion would be purchased at the higher price when the wholesale price goes up.

Sorry, I'm lost.
Most of what supply?
What I tried to say above was that if you saw the prices climbing, you would buy even more in advance than normal - it's not as if they need to store it so are limited by storage volume.

magyar

mattcanary wrote: »

So why do you they put their prices up immediately (or almost immediately) when the wholesale prices go up, but take ages to adjust their prices when the wholesale price goes down?. Hedging or not, they are ripping off customers. If they bought at different prices, they could also hold off increasing their prices to their customers if they had any ethics whatsoever.
I'm sorry magyar, but your explanation defies all logic.

Well, the explanation is the truth - logical or otherwise.

I agree with JonSwan, I'd like to see some evidence of this 'immediate price rises'. Hedging means that companies should be able to keep prices low for some time.

One point to bear in mind the spot price market is up and down like a yo-yo. Individuals do not want to be exposed to this sort of market risk: so there has to be an element of 'smoothing'.

Having said all that - of course there is an element of profiteering; there would be, these are private companies. But I don't think there's a massive element of this. In practice residential margins are very, very low.

davidgmmafan

Exactly there are tracker tariffs available, but I wouldn't fancy one.

mattcanary

Hmm, the utility companies may claim the profit margins are low on each customer. Ever heard of creative accounting? Commonly used by the well-off to get out of paying their fair share of tax.
Aren't the prices utility companies charge far higher in the UK than they are in most of the rest of Europe? That's because of the political parties in this country all following Thatcher dogma - the market rules. Except it rips off people. Governments are meant to be in place to make laws and change society as and when required - not to pander to the whims of big business!