Competition Amongst Energy Companies

JennyB

Is it just me who thinks that there must be something seriously wrong with competition in the energy sector when my cheapest supplier of gas and electricity is British Gas? Ofgem claim that competition in the sector is fine because many people are switching supplier but surely that means nothing if there are only a few suppliers and they all keep their prices high. It seems to me that a few years ago (3 perhaps?) there were a lot more suppliers and prices seemed to vary more - now there are fewer and fewer suppliers and to end up being with British Gas again after all these years just seems wrong.

I'm totally prepared to be proved wrong but it just feels like we're getting robbed.

British Gas's operating profits:
Feb 2006 - up 11% on 2005 to £1.51 billion
Feb 2005 - up 64% on 2004

Wishing I was a shareholder instead of a customer :mad:

Derek_A.

Jenny B,
Being a shareholder of BG wont make you rich, i
am a shareholder i worked for the company, i was in the sharesave scheme.
The dividends are only 1.5 pence a share,but i must admit the shares have increased since i retired.
BG was second only to M&S for customer service 15 years ago. Who would have believed it now.

Cardew

The distribution arm of BG(the company that affects us as a consumer) has made a loss the past couple of years. Also BG have a restriction on cutting their Gas prices placed on them by the regulator.

It is argued that the BG could subsidise their distribution side; however they maintain this is cross-subsidy and illegal. There are conflicting views about that position.

If it were allowed, there are a few major players who could undercut the smaller players and force them out of business. To a certain extent this is what has happened to some of the smaller distribution companies – they have been forced out of the market because they were unprofitable.

Whilst we all complain about high prices, we must appreciate that it is the worldwide open market price of Gas/oil/coal that has the greatest affect on our electricity and gas tariffs. Bear in mind also that every rise in gas and electricity price has to be sanctioned by the regulator.

JennyB

Derek_A - my comment about wishing I was a shareholder was inspired by this quote I just read:

"Shareholders have benefited hugely, with the dividend up by 22% - exactly the same as the rise in British Gas bills - to 10.5p a share or a total of £340m." - Evening Standard 23 Feb 2006

Sure it won't make you rich but I'd rather my dividend was up 22% than my gas bills!

JennyB

Cardew - Whilst I appreciate that the increasing wholesale costs of energy are responsible for rises in our bills I cannot help but feel that we could all be paying less if there was more competition in the energy market.

The number of suppliers has really dwindled in the last few years and less suppliers means less competition means higher prices. I believe the reason we have less suppliers is because mergers and takeovers are too readily approved by the competition authorities.

To illustrate - here is a list of every supplier of gas in the UK grouped by who owns the brand - anyone who has been switching for a few years will know that it hasn't always been like this, some of these used to be separate companies:

Scottish Power
AA
Beacon
Ideal
Lloyds Ideal
RSPB Energy
Sainsbury's Energy

Powergen
Amerada
East Midlands Electricity
Eastern Electricity
Midlands Gas
Norweb Energy
Sterling Gas
Tesco Energy
TXU Energi

Scottish and Southern Energy Group
Cambridge Gas & Electicity
Equigas
Equipower

nPower
Calortex
Daily Telegraph
Independent Energy
MEB
Midlands Electiricity
Saga Energy
York Gas

EDF Energy
London Energy
Elf at Home
SEEBOARD Energy
SWEB Energy
Virgin Home Energy

Countrywide Energy
Midland Shires Farmers

Others:
British Gas
Scottish Gas

Basic Power

Ecotricity

Telecom Plus plc

Unit[e]

oldwiring

IMO and TBH it seems that what we have come to now- five major players and a few tiddlers is not too different to what happened in other major service type industries pre-war and before nationalisation. I think you will find that buses in the period had about five majors, and if you look at their situation now you'll find much the same. At one time there were many banks, but subsequently there were the Big Four and some other minors like the District. That and others were swallowed by the biguns, OK there are now more, but I would not be that surprised if some of the now existing ones were taken over by larger groups ( only my opinion FWW).

Perhaps it has something to do with costs- a time when to expand becomes costly; I dunno. Take that with what Cardew says and you've not got that much margin for price competition. In all I am not surprised that the price diffrentias are diminished.

Cardew

JennyB wrote:

Cardew - Whilst I appreciate that the increasing wholesale costs of energy are responsible for rises in our bills I cannot help but feel that we could all be paying less if there was more competition in the energy market.

The number of suppliers has really dwindled in the last few years and less suppliers means less competition means higher prices. I believe the reason we have less suppliers is because mergers and takeovers are too readily approved by the competition authorities.

[/B]

JennyB,
You may be right but personally I am not sure that more competition, currently, would have more than a marginal effect on prices - as nobody in the distribution industry is currently making money.

I suppose one must ask the question why have the companies you detailed in your post have got out of the business of supplying gas and electricity? Presumably as they see no reasonable prospect of becoming profitable in a price regulated industry.

If a company is making a loss, as most of them have been, there is not much the authorities can do to stop mergers. They can hardly force a company to keep supplying their customers at a loss. As I understand it the companies who got out have done little more than handover their customer base to another company. Although as usual in these takeovers the directors of these companies have not been financially disadvantaged!!!

I also think that if a huge company like Tesco, Sainsbury, Virgin, LLoyds etc could supply gas and electricity at a cheaper cost, and break even or show a small loss, they would do so because of the huge customer base they would build up for their other products.

Let us also not forget that there is still nothing stopping another new company entering the market. If the regulator allowed good profit margins I would have thought they would enter in a flash.