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

backfoot

MartinSmythe wrote: »

You've ignored my point on green levies.

Convenient.

I agree it....but

I have challenged your view that £50 is acceptable and that £50 is the only profit element in the bill.

chanz4

I agree with the above, why does the government want all these features at the cost of all bill payers.

MillicentBystander

MartinSmythe wrote: »

£50 net profit. Fact.

The bottom line here is if BG wasn't satisfied with their return here in the UK they could simply sell up (looking at the history of the Big 6 it doesn't seem an unattractive proposition to huge foreign predators). Backfoot summed this industry up perfectly - it's a very easy one for the Big 6 to be involved in, there is very little risk and very little churn due to the barriers/apathy etc. Changing your energy supplier is not and never has been like changing your grocery supplier, for instance. They effectively all have a captive market of millions, it's just a matter of pricing the product so they make a profit which is acceptable to their shareholders and giving the impression of it being a competitive market by funding loss leading short term deals (by ripping off their loyal customers) for the minority of punters who play the 'tariff tart' game. Easy peasy. Cushy. Basically, privatising this industry has proved to be one of the biggest failures in British industrial history. Fact.

spot1034

Profit doesn't all get paid out to shareholders. It is also needed for future investment.

backfoot

spot1034 wrote: »

Profit doesn't all get paid out to shareholders. It is also needed for future investment.

That's a true statement.

Mr. Bentley said'

'If we made a loss we wouldn't be able to keep investing in Britain's energy future — vital investment that secures electricity and gas supplies for the future to keep the lights on and keep our homes warm. I can't allow us to sell energy at a loss and put those investments at risk.'

Isn't the ethos and I thought the Regulation, that there should be no cross subsidy?

Keeping the lights on and the network are the responsibilities of the National Grid and the Generators. Supply profits should be reinvested in the Supply Business. BG did just that with its botched IT system implementation.

MillicentBystander

spot1034 wrote: »

Profit doesn't all get paid out to shareholders. It is also needed for future investment.

You are of course correct but in the 20+ years that have gone by since privatisation has our gas storage facilities improved by any significant margin? lets' also not forget the £500 million IT system that BG invested in that was so unfit for purpose they sued the company that supplied it. There's investment and there's wasting money, I would conclude.

backfoot

Originally Posted by MartinSmythe
£50 net profit. Fact.


Yes this is a very important fact.

More precisely it is the Average Supply Business Net Profit per customer (before tax).

The Gross Profit per customer according to BG is £153.

The added and controllable net operating costs are £100 which mainly relate to the Billing and Collection function along with the associated staff and Executive Salaries.

As Mr. Bentley has explained the other costs are pass through costs. So BG and others have decided to levy a £53 profit per customer on an operating cost base per customer of £100. It is an extraordinary mark up for doing so little. Basically an administrative operation with little real added value.

The other segments within the light bulb diagram are also fact. The fact is, that in absorbing those costs each of the elements contains further profit from different organisations.So for example,the meter reader contractors (data collectors) add their margin. As do the Network Operators, (National Grid and the Distribution Network Operators). Then there are the Govt.subsidies which you referred to within that section.

Finally,and this is key, there is the wholesale cost which is the Generation and Production costs in electricity and gas. Guess what, this is the where the big energy companies make their money adding further profit. EDF, RWE,EON and of course Centrica which is also the holding company of BG's Supply business.

Now that's convenient.

Cardew

backfoot wrote: »

Originally Posted by MartinSmythe
£50 net profit. Fact.


Yes this is a very important fact.

More precisely it is the Average Supply Business Net Profit per customer (before tax).

The Gross Profit per customer according to BG is £153.

The added and controllable net operating costs are £100 which mainly relate to the Billing and Collection function along with the associated staff and Executive Salaries.

As Mr. Bentley has explained the other costs are pass through costs. So BG and others have decided to levy a £53 profit per customer on an operating cost base per customer of £100. It is an extraordinary mark up for doing so little. Basically an administrative operation with little real added value.

The other segments within the light bulb diagram are also fact. The fact is, that in absorbing those costs each of the elements contains further profit from different organisations.So for example,the meter reader contractors (data collectors) add their margin. As do the Network Operators, (National Grid and the Distribution Network Operators). Then there are the Govt.subsidies which you referred to within that section.

Finally,and this is key, there is the wholesale cost which is the Generation and Production costs in electricity and gas. Guess what, this is the where the big energy companies make their money adding further profit. EDF, RWE,EON and of course Centrica which is also the holding company of BG's Supply business.

Now that's convenient.

How will your analogy on profit margins apply to, say, Tesco would had their worst ever drop in profit margin for the 6 months ending August 2012 and only made £1.7 Billion profit(£1,700,000,000)

MillicentBystander

Like I have said before whenever you've brought this comparison to the board's attention (lots!! ); whilst I would be the last person to defend Tesco as a company, comparing the 2 is futile. The food/groceries market has no such barriers to change as exists in the energy industry. Can you imagine deciding to change your grocery shop from, say, Tesco to Asda, having to apply to Asda who then get in touch with Tesco to request the customer is released and allowed to shop at Asda and the whole process take 2 months? :rotfl: It's an absolute nonsense to try and justify the profits of BG by using Tesco's profits as some sort of yard stick. Not by any means perfect but the grocery industry is a far more competitive one (and any shenanigans have been stamped out in far more ruthless fashion that has happened in the energy industry. Ofgem's stance on npower's gas sculpting anyone?). Business is all about profit to risk - the lower the risk usually the lower the profit potential. The energy industry 9certainly if you one of the Big 6) is a VERY low risk industry. Simple really.

backfoot

Cardew wrote: »

How will your analogy on profit margins apply to, say, Tesco would had their worst ever drop in profit margin for the 6 months ending August 2012 and only made £1.7 Billion profit(£1,700,000,000)

hi Cardew,

It's not my analogy....it's yours in trying to transfer the one to the other. Invariably,you and others try to draw this false analogy with Tesco.

They are entirely different businesses operating in different markets.

Supermarkets were never in the public sector. Supermarkets have a huge range of products while energy is simply gas andelectricity.

I am focussing on whether I agree that the energy companies should be allowed to make supply Profit of £50 per customer on a cost base of £100 for doing so little.

I am also pointing out that this is only the tip of the iceberg in terms of profit made along the path from generation to end user. Supply Profit is only one element and I am trying to find out how much average profit per customer is charged by the likes of Centrica.

I have asked Mr. Bentley who hopefully will explain.

Some people seem content with this non competitve market producing additional costs to energy end users. I feel differently and find it dreadful that people in fuel poverty have to continue to meet shareholder returns from the various business players.

In my view, the deregulation has added cost rather than saving it and that compettion has not worked.