MSE News: We'll freeze energy prices, Ed Miliband tells Labour conference

undaunted

You're obviously entitled to your opinion, as am I & everyone else.

All political newspaper reports are influenced by their allegiences obviously. but I still think that a balanced report (and I'm generally more right of politics than left!)

Would I welcome interference no, but it wouldn't necessarily stop me investing in a profitable market, particularly not long term. There is no serious doubt in my mind that energy is & will remain a very profitable market.

The "characterisation" may be debatable but the fact is we don't really clearly know what energy co.s make in total & they aim to keep it that way by great sleight of hand (as was rightly suggested by another poster above)

I don't think the variance between companies expecting to recieve and offer a fixed or capped price cited there is so unreasonable personally.

Profits & capitalism are quite probably "necessary evils" in life of course but out of control profits from the essentials like electricity, gas & water are quite a different thing to say car manufacture or even a telephone (where you could just choose to get a bike, a mobile, write or do without instead if you wished)

samizdat

undaunted wrote: »

I don't think the variance between companies expecting to recieve and offer a fixed or capped price cited there is so unreasonable personally.

Two issues have been conflated in the article.

On the one hand, there is a need to encourage investment in new electricity generating capacity, especially low-carbon/renewable capacity. Much of this would not be undertaken in a free market, because the cost to produce electricity from renewable sources is higher than from sources such as coal and gas. In order to ensure this investment takes place, it is necessary for governments to subsidise it by for example promising an enhanced and/or stable price.

On the other hand, there is the question of the average market price charged to consumers for electricity and gas, which will depend on a number of factors, including supply profits. However, a huge factor in electricity prices (and gas prices) is the underlying commodity cost of gas, which is not controlled by UK utility companies. Gas supply is to a large degree a global free market, albeit heavily manipulated by the large producers. In Europe (inc. UK), while it is true that the commodity gas market is extremely opaque and highly politicised, the so-called "Big 6" UK energy suppliers are not really the most important players - it is more in the hands of the Russians, the North Africans and the Norwegians. They do have undisclosed long-term supply contracts with large European energy suppliers such as E.on, RWE, Enel etc, but I believe the actual producing nations hold the whip hand here. (Edit: I believe the gas price under these contracts was sometimes/often linked to the oil price, which could produce extraordinary results when the market price of these commodities diverged. It has been a while since I worked in the investment industry though.)

Anyway, the point is that the gas price is the main determinant of gas and electricity prices in the UK, and if it is not under the control of the Big 6 companies, then it makes no sense at all to cap or fix energy prices charged to consumers, because this will either have no effect (if the price is sufficient to meet production costs), or it will force the companies to supply energy at a loss, which is unsustainable and counterproductive in terms of attracting investment.

Only_a_ginger

E.ON CEO Tony Cockers response...

http://pressreleases.eon-uk.com/blogs//eonukpressreleases/archive/2013/09/25/1983.aspx

cepheus

samizdat wrote: »

Anyway, the point is that the gas price is the main determinant of gas and electricity prices in the UK, and if it is not under the control of the Big 6 companies, then it makes no sense at all to cap or fix energy prices charged to consumers, because this will either have no effect (if the price is sufficient to meet production costs), or it will force the companies to supply energy at a loss, which is unsustainable and counterproductive in terms of attracting investment.

The problem with all this is that your assuming every last penny is being spent on reducing consumer prices and necessary investment, this obviously isn't true. We need to ensure the profits are redirected to the consumer rather than the shareholders.

Power up: Our energy bills soar - but share holders get £7billion 15 Jul 2012 09:36 EDF paid out the most with £1.87billion in dividend

Cardew

cepheus wrote: »

We need to ensure the profits are redirected to the consumer rather than the shareholders.

Then take back all Utilities into Government ownership.

Or, strengthen the powers of the Regulator to control all expenditure and profits.

Or, if UK is committed to achieve xx% generation of 'green' energy, then pay it from taxes and not get the Utility companies to collect it via a levy on all customers(including the poorest in the land) - and blame the energy companies for the resultant increase in charges.

Like it or not, we live in a Capitalist society and that is how the society works. People/pension funds etc invest in Utility companies who in turn make a profit and pay dividends.

Nilrem

cepheus wrote: »

The problem with all this is that your assuming every last penny is being spent on reducing consumer prices and necessary investment, this obviously isn't true. We need to ensure the profits are redirected to the consumer rather than the shareholders.

Yet a company has an obligation to try and pay out dividends to it's share holders.

And does the dividend mentioned in the Mirror article reflect the dividend from the UK part of EDF, or the group as a whole, let alone how much is that as a percentage of the turnover, or even if it was higher this year than normal (IIRC sometimes companies don't pay out dividends for a year or two, then pay out a large one)...

Large numbers are often used out of context in the papers because it makes the article more exciting, and raise peoples ire.
However when seen in context you often suddenly find that the numbers aren't as big as all that.
For example that 1.67 billion is a lot if the turnover is only say 10 billion (at nearly 17%), but if it's something like 65 billion+* then it's suddenly quite a small (around 2-3% - less than the green taxes from memory).


*Which would appear to have been it's turnover in 2011 for the whole group.

cepheus

Cardew wrote: »

Then take back all Utilities into Government ownership.

Or, strengthen the powers of the Regulator to control all expenditure and profits.

Or, if UK is committed to achieve xx% generation of 'green' energy, then pay it from taxes and not get the Utility companies to collect it via a levy on all customers(including the poorest in the land) - and blame the energy companies for the resultant increase in charges.

Like it or not, we live in a Capitalist society and that is how the society works. People/pension funds etc invest in Utility companies who in turn make a profit and pay dividends.

Unless you have forgot capitalism failed in 2008, and the state had to bail it out. Most potential Labour voters have so little invested in such firms (including pensions) its better better to have cheaper bills. Thatchers shareholding democracy failed.

Cardew

cepheus wrote: »

Unless you have forgot capitalism failed in 2008, and the state had to bail it out. Most people have so little invested in such firms (including pensions) its better better to have cheaper bills. Only the richest 20% will benefit from prioritising shareholders. Thatchers shareholding democracy failed.

It wasn't capitalism that failed in 2008. It was a culture that allowed Banks to gamble with other people's money so a few bankers could earn a massive bonus.

It was socialism that failed somewhat earlier than 2008 - in the Iron block countries.

cepheus

Nilrem wrote: »

Yet a company has an obligation to try and pay out dividends to it's share holders.

And does the dividend mentioned in the Mirror article reflect the dividend from the UK part of EDF, or the group as a whole, let alone how much is that as a percentage of the turnover, or even if it was higher this year than normal (IIRC sometimes companies don't pay out dividends for a year or two, then pay out a large one)...

Large numbers are often used out of context in the papers because it makes the article more exciting, and raise peoples ire.
However when seen in context you often suddenly find that the numbers aren't as big as all that.
For example that 1.67 billion is a lot if the turnover is only say 10 billion (at nearly 17%), but if it's something like 65 billion+* then it's suddenly quite a small (around 2-3%).


*Which would appear to have been it's turnover in 2011 for the whole group.

The profit margins of these companies are around 5% on average, not a vast amount, but better in the pockets of the consumer than the shareholder. By reducing the salaries of the fat cats we could return more to the consumer still.

samizdat

cepheus wrote: »

The problem with all this is that your assuming every last penny is being spent on reducing consumer prices and necessary investment, this obviously isn't true. We need to ensure the profits are redirected to the consumer rather than the shareholders.

This isn't the Soviet Union.

Governments are not very good at controlling everything that happens in an economy, and it leads to massive bureaucracy and corruption. Capitalism has many faults, but it is better to try to regulate areas of difficulty rather than just take complete control.

Part of that involves encouraging private investors to fund necessary infrastructure, and profits are necessary to achieve that. Obviously, governments have to step in if monopolistic practices get out of hand, but "stepping in" doesn't have to mean price controls.

The problem successive governments have had is that their attempts to intervene have just increased uncertainty in the minds of investors, which has meant that investment has not been forthcoming. On top of that, the green agenda, whatever its merits, has and will lead to higher prices for consumers, and "social obligations", i.e. subsidies for the poor, have also been loaded on to private companies and passed on to the consumer.

It is ludicrous to blame companies for trying to make profits - that is their job. It is up to the government to get the right regulatory framework in place, and if it is felt that this has not happened, it is politicians, voters, and society as a whole who must shoulder the responsibility.