MSE News: Guest Comment: The problem with energy firms

magyar

I have one point of pure logic to add to the argument.

Some people seem to think that all that's involved in the energy business is 'buying wholesale energy and selling it on'. If that's the case, why isn't everyone doing it? Why doesn't someone just set up a simple company to do just that, have the minimal overheads everyone thinks is possible, and just undercut everyone?

grahamc2003

magyar wrote: »

I have one point of pure logic to add to the argument.

Some people seem to think that all that's involved in the energy business is 'buying wholesale energy and selling it on'. If that's the case, why isn't everyone doing it? Why doesn't someone just set up a simple company to do just that, have the minimal overheads everyone thinks is possible, and just undercut everyone?

Everyone thinks possible? My oh my, I'm sure others would feel your wrath for a lie such as that.

As you know, suppliers do more than buy and sell gas and electricity. One of their additional functions these days is a tax collector (relax mag, count to ten, deep breathes, resist the desire to act before you think).

Yes, the 'environmental contribution' component of our electricity bills, collected by suppliers, has been classed as a 'tax' by some European body which decides these things.

So that envronmental tax collection (which incidently is currently 37% of the wholesale electricity cost according to b gas) and likely indirect distribution to people like you is just one extra function suppliers have these days.

magyar

grahamc2003 wrote: »

Everyone thinks possible? My oh my, I'm sure others would feel your wrath for a lie such as that.

'many people' then, if you prefer... as they say, there are lies and there are damned lies. All I have asked from you is for some statistics.

grahamc2003 wrote: »

As you know, suppliers do more than buy and sell gas and electricity. One of their additional functions these days is a tax collector (relax mag, count to ten, deep breathes, resist the desire to act before you think).

Yes, the 'environmental contribution' component of our electricity bills, collected by suppliers, has been classed as a 'tax' by some European body which decides these things.

So that envronmental tax collection (which incidently is currently 37% of the wholesale electricity cost according to b gas) and likely indirect distribution to people like you is just one extra function suppliers have these days.

Actually the reason for the classification in that way was quite simple, it's because HMRC wanted to have control over it rather than DECC.

Cardew

Nobody has mentioned Ebico who are a non-profit making company. They have by far the simplest tariff on the market - no standing charge, no tier system, no discounts, no difference for using whichever method you choose to pay; yet they are very expensive for anyone other than low users.

This might be putting 'my head in the lions mouth' but IMO the profits of the gas and electricity distribution companies are not excessive. In 2010 British Gas had by far their record year they made less than £50 per customer - £742 million. To put that in perspective Tesco made £3,800 million(£3.8billion) over 5 times as much as British Gas and more than double the profit for all gas and electricity companies in UK.

Put it another way, if Britsh Gas were forced to make zero profit, their customer's bills would be reduced by by less than £50 a year.

Another unpalatable fact is that UK has some of the lowest gas and electricity prices amongst the major nations in Europe.

It seems to me that all the companies have a product(gas and electricity) that differs little in the price at which it is economic to put on the market. This is why we have this ghastly 'confusion marketing' with a multitude of tariffs, standing charges and discounts.

In case anyone thinks differently, I have not forgotten about the vast profits that the Generating companies - Centrica etc - but they are global companies who sell their product on the world market.

magyar

Cardew wrote: »

In case anyone thinks differently, I have not forgotten about the vast profits that the Generating companies - Centrica etc - but they are global companies who sell their product on the world market.

... and I think this is the point, really. The generating companies are required by law to be separate legal entities from the trading companies and therefore you can't cross-subsidise.

The idea is that this ensures competition in the industry but the reality is it just pushes prices up as.

backfoot

It strikes me that the competition is really in fleecing as much as they can from the 'stickers'.

A small gesture or two aimed at the online market will give an appearance of fighting for business.

Call me cynical but Scottish Power raise prices by eye watering double digit figures to the standard and associated customers ,then on the same day, introduce a new market leading online rate. This lasts for a two week period before it runs out?:rotfl: What runs out?

magyar

backfoot wrote: »

This lasts for a two week period before it runs out?:rotfl: What runs out?

The volume they bought. The way that these companies work is that they will be buying a series of tranches of long-term fixed prices in the wholesale market. When it runs out, they will shift onto more expensive products.

backfoot

magyar wrote: »

The volume they bought. The way that these companies work is that they will be buying a series of tranches of long-term fixed prices in the wholesale market. When it runs out, they will shift onto more expensive products.

Yeah right. First off, the product was short term. October 2012.

Why didn't they get more of it? Say a three for two offer ? :rotfl:

They must have known there would be demand for it with their own rise and that of the rise on EDF's OS7 and others.

I know you work for the industry but please don't let it cloud your judgment.

It was withdrawn because it was a short term sop to the online market but their legal team told them to take it off the shelf because the advertising was dodgy. Two weeks! The product launch costs wouldn't be covered by then.

How many were taken up in the two weeks?

magyar

I have to say two weeks is indeed astonishingly short. It may have been a mistake, or something. As they say, never attribute to conspiracy something which can adequately be explained by incompetence.

I do wonder why everyone seems to think that working in the industry 'clouds my judgement' because if you note from my posts I almost never say anything particularly positive about the companies themselves, I simply point out facts as I know them.

I have no problem with constructive criticism, comments etc., I just hate the rather tedious 'they're all out to rip us off' points, because what I can promise is that inside the industry it really doesn't feel like that. Of course people want to make as much money as possible, but the reality is that the energy industry is high risk, very volatile and low return.

Cardew

magyar wrote: »

I have no problem with constructive criticism, comments etc., I just hate the rather tedious 'they're all out to rip us off' points, because what I can promise is that inside the industry it really doesn't feel like that. Of course people want to make as much money as possible, but the reality is that the energy industry is high risk, very volatile and low return.

Whilst I agree with the thrust of your arguments, the Utility companies have scored a massive 'own goal' by the way they market their product.

Many people simply don't understand the tariffs - with all their small print.

It also is a disgrace that sales centre staff and doorstep salesmen are paid on commission and quote stupidly low initial Direct Debit payments to lure the uninformed customer to switch. The inevitable huge increase in the DD fuels anger.

They have collectively become public enemy No1.