MSE News: British Gas boss: Why I put your energy prices up

edisdead

I think another important point to make is that it is very unlikely that energy prices are as low as they could be because we know that customers are not switching to reward price competition.

About 75 per cent of people are on standard tariffs and I refuse to believe that is because they all want to get a paper bill each quarter. Either they have not switched or they have been hoodwinked by sales staff at some point in the past - they may have switched, but only to another standard tariff.

If you believe in the power of free markets to produce consumer benefits at all (and I hope we do as our whole system of society is based on it) then you must agree that the lack of customer movement in the energy market means prices are not as low as they would be if people switched more readily.

It may seem impossible to Phil Bentley but you can rest assured that prices would be lower (through lower costs, better management, more productive processes) if power companies saw customers walking out the door.

Cardew

edisdead wrote: »

The reason that these excuses don't wash is that British Gas is part of Centrica, which also generates energy.

I know that British Gas buys its energy on the wholesale market - but it also generates energy for the wholesale market, on which it presumably makes vast profits when wholesale prices rise. Most of the other Big Six also do this and they all sell to one another.

Phil Bentley says that the retail arm has to make a profit in its own right in order to continue to supply energy, but who exactly does he think Centrica and the other generators would sell their energy to if the retail arms did not exist? The retail arms facilitate the far larger profits of the generation arms.

Bentley and the other bosses moan that there is hardly any profit in retail energy, which begs the question - 'why do they do it?'.

I think the answer is that have to if they are to make the huge profits on generation so his defence of retail price rises on the grounds that the profit margin has to be maintained is disingenuous.

Additionally, given that Mr Bentley insists that the price rises are unavoidable, and are therefore beyond control, is he not admitting that the privatised market for energy is actually broken and needs to be fundamentally reformed? For we have reached a point as a nation that we are being held to ransom over the provision of a basic necessity - heat and light in our homes.

Welcome to the forum.

Do you think the Centrica exist in their own bubble and that they can only sell to UK companies?

What action are you suggesting that Centrica should take?

1. Sell energy more cheaply to all UK companies?

2. Sell energy more cheaply to BG.

3. Give some of their profits to BG so they can subsidise their customers, and take custom away from the other companies.

4. Do you feel £50 profit PA a customer is excessive?

5. If Centrica and BG made zero profit, by how much do you feel prices would fall?

6. Why can't a non-profit making company like Ebico have competitive tariffs lfor most people?

P.S.
Where does Mr Bentley complain that they make hardly any profit?

P.P.S.
Maggie sold off the 'family silver' when she privatisied the Gas/electricity industry. 'Sid' persuaded millions of people to buy shares in something we all owned. There are still millions of people - not least the Pension funds - that get dividends for the money they invested.

It is how a Capitalist society works.

Cardew

crispibits2 wrote: »

Indeed, that would be horrendous - if there *was* competition - as it is it appears to be something of a cartel.


They would be justified in passing the buck with full disclosure, e.g: 'this is the cost of energy provided to us by another part of our own company, and their profit is £X'. Perhaps I'm being disingenuous, do BG buy their energy from somebody else?

Mr Bentley has invited questions, why not ask him?

When you talk of a cartel, in his article he explains the percentages of costs that are outside the control of BG.

As said in previous threads.

1.Exactly the same product(gas/electricity) is delivered by exactly the same means(pipes and wires),

2. The companies buy from the same world market.

3. They pay the same taxes.

4. They have to subsidise some poorer customers, which they do by raising prices for the rest of us.

5. They provide subsidies for Green energy(wind/solar etc) ditto us paying.

Points 4 & 5 are just the Government passing the buck to the energy companies.

So it is hardly surprising that it is not really a competitive market.

jamesd

Does the wholesale costs part include the government mandated portions of the wholesale price, like subsidies for certain types of energy? What is the breakdown of those? Say in the difference between the price Centrica produces gas at and the price British Gas buys it from Centrica at.

For the delivery portion, how much of that is taxes, surcharges and subsidies? Say for things like subsidised transport for power generated by certain fuels or in certain locations - say wind farms in northern Scotland sending power to England?

Please keep up the good work on disclosure but expand it. If a politician is saying they are trying to lower bills I want to see the figures that prove whether they really are doing that or not.

For the portions identified as British Gas it appears that the new total amount is £153 of which £53 is profit. About a 34.64% profit margin. The previous margin was 34.18% so British Gas appears to be increasing its margin by 1.3% of the previous margin.

I can see why there's some desire on the part of a government to reduce the margin BG makes on the service it provides itself to something that may be perhaps ten percent or so, still a fairly high margin for a commodity product.

Thanks for the breakdowns. Please include a complete breakdown for all charge types including the wholesale portion, something that's pleasingly common over in the US. Helps if consumers can see just how much the government is charging them for their utilities. particularly when our current Prime Minister has said that he will do everything he can to lower our energy bills.

Perhaps time for the PM to do that all he can lowering. Though at least the moves to increase the proportion of gas in the energy mix were a step in the right direction.

spot1034

mrs_angry wrote: »

i could well believe his statement if when the price of oil went down so did our energy costs, BUT it doesnt and so its a win win situation for energy companies.

maybe if we paid less when it cost less when it did rise we would then take the hike on the chin, but its a fact we have a hike say by 5% then they lower it by 2% and are still raking in the money and huge profits

The cost of the fuel is only part of the bill. Most of the components of the bill are rising including the payments for use of the trannsmission system and the 'green' subsidies imposed by govt which the energy companies are forced to pass on, so the price rises which I'm afraid are coming every year reflect these increases as well as any increase in the wholesale gas price. When this falls, the other costs don't. That's why bills don't tend to come down as much as they go up. Wouldn't it be great if the transmission costs and govt subsidies were unexpectedly reduced, so bills could fall more? But I'm afraid this is unlikely. In simple terms, if the cost of the wholesale gas falls by 10% and this makes up half the bill, a 5% reduction in the bill is quite consistent with that.

jimjamyaha

Dear Phil Bently,

Thanks for explaining the situation - which does makes sense. Except that it assumes that BG has to make a profit and can't just break even. £50 profit/customer is a lot of money in total!

One point - the majority of properties in the UK have solid walls, not cavity. Currently there are no grants/funding available for properties with solid walls to access free or subsidised insulation schemes for the average (non-benefits, etc) householder.

Could you let me know what BG and others are doing to encourage the Government and others in the industry to provide this. This would enable a large amount of properties to become better insulated. It's all very well scorning customers via Radio 4 and other places for not 'taking up your offer' but I think you will find that many are unable to benefit due to having solid walls.

Regards,

thor

spot1034 wrote: »

The cost of the fuel is only part of the bill. Most of the components of the bill are rising including the payments for use of the trannsmission system and the 'green' subsidies imposed by govt which the energy companies are forced to pass on, so the price rises which I'm afraid are coming every year reflect these increases as well as any increase in the wholesale gas price. When this falls, the other costs don't. That's why bills don't tend to come down as much as they go up. Wouldn't it be great if the transmission costs and govt subsidies were unexpectedly reduced, so bills could fall more? But I'm afraid this is unlikely. In simple terms, if the cost of the wholesale gas falls by 10% and this makes up half the bill, a 5% reduction in the bill is quite consistent with that.

Does anyone know how much these outside costs are? These companies are in a no lose situation even when it is pointed out to them that reductions are always a much smaller fraction compared to increases. They always bleat on about how it was the evil socialists of the previous government forcing costs of infrastructure upgrade and new nuclear and renewable generating capacity on to them. But exactly how much does this put on our energy bills given that the costs would be spread over decades.
Also I know wholesale costs are rising generally but there have been periods of reductions as well so I want to know why do the utilities always end up paying high prices. Their apologists are constantly telling us they buy months ahead and it is always at a high price. Are their buyers that useless? Considering they must be getting paid a fortune, I would have thought they would be able to get a few good deals from time to time. It can't be that hard. I'll do it for half the pay - I could not do much worse!

spot1034

Of-course companies like Centrica need to make a profit. The profit is what is used to drive the business forward and invest in future projects. Did you think they keep it all to have a wild party at the expense of their customers?

Some does get paid out in to shareholders in the form of dividends - and remember that pension funds are the owners of quite large numbers of shares in utility comapnies - but shareholders can also be a good source of new funds to finanace major capital projects. We need utility companies to spend £200 billion in the next decade, and their shareholders are not going to be very happy to put up part of that cash if they are told there is not going to be any return on their investment.

The alternative scenario is for a nationalised industry to borrow all the money, and I would suggest that the UK government would be in no position to take on such debt without pushing up interest rates in the entire economy, meaning higher mortgage rates amongst many other things. Now that really would go down well with the population at large, wouldn't it!

ihateyes

Dave_save wrote: »

''British Gas doesn't control 85% of the bill. We have no control over the cost of energy''

Amazing! Here we have the top man in British Gas telling us that they cannot even influence the cost of our energy. They cannot innovate. They cannot cut costs. They cannot get better deals on the wholesale market. So what exactly do BG do? Seems like we have a pointless energy supply market with the 'big 6' all telling us 6 times the same thing, over and over.

Well Bentley, if I were you I'd look for a career that's more rewarding, you obviously have very little job satisfaction where you are! You must get up every morning knowing that whatever you do, you are a mere puppet.

Ha ha....

Had to laugh at this one....

The cost of Gas is linked to the cost of oil.....
The Government taxes the Energy companies like Oil, thus thats way ebergy companies have no control over 85% of the bill.

Puppet? you looking in the mirror?

ihateyes

Aldridge_Andy wrote: »

I think that next week will be a shock for BG and other energy providers as the customers switching tariffs start to become visible.

I'm convinced that some of the big players will lose a shed load of customers and may actually have to do something to attract or keep customers, what though I'm not sure,

Shock..... NO!

There is a merry go round every time their is increases.....

company a might lose to b now, but next time, or the time after they will get them back....

This is nothing new!