MSE News: Will the big freeze hit energy bills?

Pincher

I look forward to a press release that goes something like:

"Because of the two preceding hard winters, we didn't think there would be three in a row, so we deliberately bought less this winter. Now that we had three days of cold weather, we need to keep the price high for months."

kevin52

It snowed for ONE day

smala01

Pincher wrote: »

I look forward to a press release that goes something like:

"Because of the two preceding hard winters, we didn't think there would be three in a row, so we deliberately bought less this winter. Now that we had three days of cold weather, we need to keep the price high for months."

You typically would only hedge 50-75% on the long term contracts with the remainder taken up on shorter term / spot basis.

Its impossible to understand your exact demand so far out (weather forecasts can only realiably give you 10 days out)

If you lock in on a high price then you stand to lose a considerable amount if the price comes down and vice versa.

Smala01

Pincher

smala01 wrote: »

You typically would only hedge 50-75% on the long term contracts with the remainder taken up on shorter term / spot basis.

Its impossible to understand your exact demand so far out (weather forecasts can only realiably give you 10 days out)

If you lock in on a high price then you stand to lose a considerable amount if the price comes down and vice versa.

Smala01

So they didn't lose money December and January, because they didn't have to dump excess contracts, and yet have been retailing at higher prices from the September price rise round.

We are probably going to be cold for a week, so they do have to buy at higher spot price for A WEEK, above existing contracts. Are you saying that is justification for affecting retail energy pricing? Considering they also benefited from lower spot rates throughout December and January?

smala01

If you consider operating margin is circa 5% and the majority of retail energy is used Nov-Feb (ish) a small space of time can have a disproportionate effect on yearly figures.

The problem today is that spot price is SO expensive at 25% (101p/t) above long term (80p/t) and traders are buying at this premium for the rest of the week and dumping (at a loss?) for next week. The volume of trades is also extremely high.

Significant Extra volume X Higher Spot Price - Dumping (next week)

There is little "fat" left (after the earlier price cuts) without hitting profit targets.

Smala01

p.s. For a couple of hours over lunch time most accounts are trading at a loss - i.e. retail price is less than cost.

Pincher

So if this winter had been the same as the last two, and the utilities had to top up at current spot price from November, they would all be going bankrupt.

They were posting healthy profits the last two years, and we shall see whether a week of -3 degrees puts a dent in that profit.

smala01

Pincher wrote: »

So if this winter had been the same as the last two, and the utilities had to top up at current spot price from November, they would all be going bankrupt.

They were posting healthy profits the last two years, and we shall see whether a week of -3 degrees puts a dent in that profit.

Last winter's scenario had been built into this years model - but when it didn`t transpire the retail price was cut by 2.5% before christmas (with another 2.5% expected shortly)

Profits will be maintained by not passing on the 2nd 2.5% discount that would have been "due" had the winter remained mild.

I'll let others decide what is fair "profits"

Smala01