Energy Suppliers 1% profit margin claim

Milarky

In a leaflet 'Helping you understand your energy costs' from those nice people at npower ahead of this autumn's round of increases, it is pointed out that they only actually carry a margin of 1% (on average) over all the costs which go into the customer's bill.

Can this really be accurate?

They provide a pie chart broken done as

49% 'Wholesale electricity and gas'
21% 'Network costs'
11% 'Operational costs'
8% ' Environmental and social supplier obligations'
5% 'Other costs that relate to UK energy system'
5% VAT
1% 'Net margin (profit)'


They garnish these figures with the explanation:

"..you'll see that only a very small proportion of a typical dual fuel customer's energy bill is made up of costs that are under the direct influence of energy suppliers. The largest proportion of energy costs are made up of wholesale costs of gas and electricity. There are many other elements that make up these energy costs like environmental obligations and the cost of transporting energy to a customer's home. Only around 1% of what a customer pays is profit made by energy suppliers"

VAT I can understand, but why would any business voluntarily trade at a margin of '1% (and not '4%', say)'? Why would the investors accept '1%'? I just don't think this claim stacks up. For a start any dividend paid can't be included in this figure, can it? So it's 'internal' profit. Fair enough, but then they aren't telling the truth about how they make their money in that case. Any fool with captive customers can use the revenue to increase their various running costs until it just looks like they only just break even.

[What about 'vertical integration'?]

Graham_Devon

Ofgem claim they make a profit of £75 a year per household.

So I guess the above explanation may be true on households using £7,500 of energy per year

Loughton_Monkey

Part of RWE.

2010 Revenue: €53,320 billion
2010 Operating Profit: €7,681 billion

I make that 14%.

The boss only trousered €8,665,000 in 2010, compared with €9,162,000 in 2009. So he's 'sharing the pain', but I suspect his wife is managing well by buying 'own brand' stuff, and turning the lights off.

http://www.rwe.com/web/cms/mediablob/en/413498/data/10122/3/rwe/rwe-group/Annual-report-2010.pdf

I've heard that British Gas fiddle it too. Something about ensuring that the 'domestic' side is charge full whack on gas that's actually traded by the more prosperous (and less emotive) commercial parts of the business.

Joe_Bloggs

This snippet from http://www.elexon.co.uk intrigued me.

Like most commodities, electricity is traded on a wholesale market.
Most of this trading is done in a forwards market, with generators and suppliers entering into contracts with each other for every half hour of every day; sometimes years in advance. Non-physical traders such as a investment banks also participate in this trading. For each half hour, they can continue to trade up to 1 hour beforehand, at which point the market for that time period is closed. All generators and suppliers have to notify National Grid of their planned supply and demand for each half hour of the day.


It is good to know that someone is making money from speculating on the price of electricity on a half hourly basis.



J_B.

chewmylegoff

Milarky wrote: »

Can this really be accurate?

They provide a pie chart broken done as

49% 'Wholesale electricity and gas'
21% 'Network costs'
11% 'Operational costs'
8% ' Environmental and social supplier obligations'
5% 'Other costs that relate to UK energy system'
5% VAT
1% 'Net margin (profit)'

no. because "network costs" "operational costs" "environmental costs" and "other costs" will all include large elements which are just recharges from other group companies which also make a profit. also, the wholesale price may just be a price they have paid to a group company which is making a turn.

kabayiri

chewmylegoff wrote: »

no. because "network costs" "operational costs" "environmental costs" and "other costs" will all include large elements which are just recharges from other group companies which also make a profit. also, the wholesale price may just be a price they have paid to a group company which is making a turn.

Your last point is bang on.

Gas shippers have retail and wholesale supply. They can make profit at both ends.

Heyman_2

Do me a favour.

It's 6 massive companies operating an energy cartel, if the going gets 'tough' (i.e. profits not quite as exorbitant as the year before) for one of them then they just put their prices up and the other 5 follow suit - and no-one can do anything about it.

Well no-one except for Ofgem (stop that laughing at the back) - I think British Gas paid their latest Ofgem fine using a jar of 1p and 2p coins they had lying around.