Utility profits

carol2612

Can you explain to me,listerning to the news, I heard some of the profits go to improving the infurstructure does this include the water and gas pipes to my house and the electricity cables? If it does why dont the companies change the pipes and cables when I change companies? It all comes through the same pipes and cables so why do all the companies all charge money so they all use the same pipes and cables and we get charged or am I not understanding why they need so much profit :mad:

Terrylw1

If you look at elec, the distributor supplies & maintains the infrastructure. They purchase the raw energy and provide a contract rate for energy purchase to a supplier. You use the elec, they get a bill at 14 months to pay for it and all through that period they get a forecasted estimate which is influenced by any readers that are taken.

So, the distributor buys and sells. The supplier guys and sells.

The distributor makes profit and reinvests X% into infrastructure which is not linked to who your supplier at the time is.

The supplier on the other and is doing nothing more than acting as a middleman and has no assets other than anything else they may own...they are simply trading paper. The supplier reinvests in its systems, services & people.

Each may be owned by the same group making the reinvestment lines blur but essentially that's where its going.

This industry is known for leaking a lot of money due to inefficiency so there has been a shift to bottomline savings...that way consumers won't ever known about savings as all the media concentrates on is wholesale...

Wolf3

Electric cables are owned and maintained by the Distribution companies and gas pipelines by the Gas Transporters, not your energy supplier. The profits reported are supposed to help maintain the larger infrastructure of the electricity grid and future energy generation structures as a whole.

Without getting into a large debate about energy companies making too much profit i can see both sides of the fence. The headline Nett profits which the media take great delight in telling us all about blind some people to the extraordinary costs that these energy companies are going to face in replacing the existing power grid when government figure out what they want to do, instead of forcing ridiculous green energy solutions which are never going to solve the looming energy crisis.
When you consider the small % profit these energy suppliers do make on there customers. BG have 18 million customers all paying £100's each year it is reasonably easy to see where these Nett profit figures come from.
At the end of the day, all we see is prices rising year on year at inflation busting figures and we are all worried, where is it going to stop??

If anyone has an answer can they write it on the back of postcard and send it to 10 Downing Street for me

Terrylw1

One way is to stop venting money out of the back door.

These companies are well known for wasteful practices...just look at these threads to see the overprocessing by their staff.

Its not small sums when you look at the difference between purchase and resale which suppliers have started to look at as continuous improvement consultancies start to make them "wise up" to the lessons of the manufacturing industries across the world.

dogshome

The Utility Co's don't live on the planet I'm on

For most of my working career I ran a small Service & Manufacturing company with all the usual pressures of changeing raw material prices,
rising overhead costs and staff wage increases, and when dealing with clients who needed a fixed price, the best I could offer was one for 3 months

Yet on planet Utility, the supply Co's are able to offer fixed prices for 18 months+, and that 18 months includes two winters when their product is most in demand, so how can they do this and stay in business ?

From my commercial experience there is only one answer, and that is that they presently have so much margin that they can absorb any unforeseen rise in costs.

Russia gets political and turns off the gas ? - No worry we can pay the extra and still make money
The Norwegian pipeline fails ? - No worry we can pay the extra and still make money
A serious fire at a Gas import terminal ? - No worry we can pay the extra and still make money
All three happening at the same time ? - No worry we can pay the extra and still make money

Cardew

dogshome wrote: »

The Utility Co's don't live on the planet I'm on

For most of my working career I ran a small Service & Manufacturing company with all the usual pressures of changeing raw material prices,
rising overhead costs and staff wage increases, and when dealing with clients who needed a fixed price, the best I could offer was one for 3 months

Yet on planet Utility, the supply Co's are able to offer fixed prices for 18 months+, and that 18 months includes two winters when their product is most in demand, so how can they do this and stay in business ?

They can, and do, place supply contracts for a couple of years ahead. Indeed BG had a 4.5 year fixed price tariff not that long ago.

However if they get it wrong on those tariffs, they just increase prices for their other customers - a win/win situation.

C_Mababejive

Well this is what happens when you strip out nationalised industries and segment the various bit.

Now take for instance Gas.

We once had the mighty British Gas Corporation. It was a world respected leader in Gas Engineering,research and development. It provided national gas services to all,ran high street showrooms and there was a single point of contact. A load of stuff was done for free or reduced costs and why? Becuase the income from sale of gas,sale of appliances,servicing and repairs all cross subsidised eachother. All the money went in the same pot.

Fast forward now and we have some companies who sell gas,some who transport it,some who rent out meters,some who provide emergency services,some who provide maintenance and servicing and there are no high street showrooms and no one knows who to ring for what.

They all deal only with their little segment and make a profit out of it.

So then,your gas supplier needs to get the gas to your home. It passes through systems owned by a distribution network such as National Grid. National Grid make a charge for transporting it. It then passes through a meter. The meter is rented from someone,theres another charge..and so it goes on.


Of course many thousands of kilometers of pipes have been in the ground since the 1930's. much of it is cast iron,ductile iron,steel etc and its all getting a bit knackere-d and leaky.

In comes OFGEM.

It sets how much companies like national grid can spend every few years.

National grid say...all these old pipes need replacing..they are old and leaky and rusty and high risk.

OFGEM goes and hires a firm of consultants to produce a report which says..well no they are not or yes they are a bit but they will do for another five years..

This has been going on since privatisation and ever few years its cut cut cut..

The latest cuts are that OFGEM has told National Grid that its forthcoming budget will be some £183m less than previous.

This in an inflationary environment.

Bear in mind that the distribution networks are within a ring fenced regulatory area so national grid distribution cant go to its parent company and ask for a few million quid.

The only way is to be more efficient and cut cut and cut again. There is no more meat on the bone.

antrobus

dogshome wrote: »

... Yet on planet Utility, the supply Co's are able to offer fixed prices for 18 months+, and that 18 months includes two winters when their product is most in demand, so how can they do this and stay in business ?

From my commercial experience there is only one answer, and that is that they presently have so much margin that they can absorb any unforeseen rise in costs....

And it would be the wrong answer. The right answer is that energy suppliers can buy both gas and electricity on the forward markets, and so fix the price they're paying for energy. Lots of businesses do that sort of thing. Bus companies (for example) tend to buy their diesel forward, since otherwise it's a bit tricky to operate a fixed fare structure.

antrobus

C_Mababejive wrote: »

...This has been going on since privatisation and ever few years its cut cut cut....

Isn't that just as well? If costs weren't being cut through efficiencies, then energy prices would be even higher, wouldn't they?

Terrylw1

antrobus wrote: »

Isn't that just as well? If costs weren't being cut through efficiencies, then energy prices would be even higher, wouldn't they?

I don't believe its a solid factor and its never mentioned in the media. Efficiencies are made saving hundreds of millions but the prices still go up. I see efficiencies as being used to offset against costly obligations forced on them because until the last few years...no one cared about making efficiencies.

Cardew

C_Mababejive wrote: »

Well this is what happens when you strip out nationalised industries and segment the various bit.

Now take for instance Gas.

We once had the mighty British Gas Corporation. It was a world respected leader in Gas Engineering,research and development. It provided national gas services to all,ran high street showrooms and there was a single point of contact. A load of stuff was done for free or reduced costs and why? Becuase the income from sale of gas,sale of appliances,servicing and repairs all cross subsidised eachother. All the money went in the same pot.

So Maggie 'sold off the family silver' as SuperMac once stated!

To be fair the Nationalised industries were a byword for inefficiency, and a small group of workers in 'essential' services could hold the country to ransom. - the miners bringing down Ted Heath's Government being a prime example.

Also after BG was privatised in 1986, energy prices for the consumer fell, helped by Maggie looting the North Sea gas.

However with the present situation, I am not sure that we haven't 'jumped out of the frying pan etc!'