All it means if you are involved in both generation and supply is there is a better balance to the business as if one does badly then they other may pick up the slack and vice versa.
So it's nothing to do with the fact that, when grilled (or rather, lightly warmed) by MPs, the energy company can claim a tiny 5% margin, which is what the retail side is charging. Meanwhile the generation side that sold it to them is making a 30% margin.
Don't get me wrong, I'm not the type of person who mindlessly criticises private companies for making a profit. I understand that they aren't charities. But at the same time, having a supply chain contained entirely within your own company and then pretending your margins are small (because the real profits are hidden in that internal supply chain) is simple dishonesty. Sadly, many consumers would not understand - or like - a 20% margin if the gas was sold directly to them by the generation side, even though this is much lower than an efficient manufacturing company makes when selling its products and would result in a lower price.
As for Centrica putting other companies out of business if they did as they pleased, the EU and the Competition Commission would soon act to break them up if they got anywhere near a monopoly - just look up the company formerly known as BAA. The current cosy club of 6 suits all of them down to the ground - not enough competitors to require real competition (and significant barriers to entry), but enough that no-one could claim a monopoly.
If the margin is so high (and therefore ridiculous) how come we have some of the cheapest prices in Europe?
Mixed Martial Arts is the greatest sport known to mankind and anyone who says it is 'a bar room brawl' has never trained in it and has no idea what they are talking about.
EDF's Blue+ Price Promise March 2015 tariff is (for my region anyway) cheaper than their standard tariff, and there are no fees for leaving early. So why would anyone remain on the standard tariff that could go up in January 2014 when they could pay less now and be guaranteed no price increase for more than a year?
If the margin is so high (and therefore ridiculous) how come we have some of the cheapest prices in Europe?
If that's directed at my last comment, then - with the greatest of respect - you've proven my point about misunderstanding margins.
No-one claimed the margin was ridiculous, it's just hidden by the way energy companies operate. A good, efficient manufacturing company will have a far higher margin - maybe 40%, maybe more, depending on the product. But this margin doesn't translate directly to profit for the company; they have other costs (Indirect costs) that are not related to the cost of making their product, but that must be covered by the margin they make. For instance, they will have employees in a payroll department, whose wages must be paid, but those people's costs are not part of the manufacturing cost so aren't included in margins for any given item that the company makes.
The company will then sell the product. Let's assume the simplest kind of supply chain - they sell it on to a shop (in fact it may be first sold to a distributor/wholesaler, or may be sold to another manufacturer who build it into their product). The shop marks up the price to cover their own additional costs of sale, and an additional margin, because they're a business that also exists to make a profit, and they're a business with their own indirect costs to cover.
In the case of energy companies, they act as manufacturer, distributor, and retailer. But they operate these businesses separately, so that the retail side can 'legitimately' say "our margin is only 5%" - and this figure almost certainly isn't by accident, as they often compare it to supermarket margins. However there is an additional - far bigger - margin made by the generation side of the business. It's all part of the same company, and the margin is still associated with the same unit of energy.
Now, if they came straight out and said "our margin is 30%" (the likely true margin including generation and retail), people who don't understand margins - or politicians looking to win a few votes - would be infuriated. However, that kind of outrage might actually lead to lower prices, because it would make the energy companies incredibly uncomfortable - they wouldn't be able to disguise their true margins or plead poverty.
Finally I'm not sure what your point is about prices in Europe, as this depends on many country-specific factors. It doesn't mean that margins in the UK are lower. For instance, http://www.energy.eu/ shows that we depend far less on imported gas than many of our European neighbours. France, Germany, and Spain import 2 to 3 times as much as the UK, as a percentage. Just because our unit costs are lower, doesn't mean we're getting a better deal.
If that's directed at my last comment, then - with the greatest of respect - you've proven my point about misunderstanding margins.
No-one claimed the margin was ridiculous, it's just hidden by the way energy companies operate. A good, efficient manufacturing company will have a far higher margin - maybe 40%, maybe more, depending on the product. But this margin doesn't translate directly to profit for the company; they have other costs (Indirect costs) that are not related to the cost of making their product, but that must be covered by the margin they make. For instance, they will have employees in a payroll department, whose wages must be paid, but those people's costs are not part of the manufacturing cost so aren't included in margins for any given item that the company makes.
The company will then sell the product. Let's assume the simplest kind of supply chain - they sell it on to a shop (in fact it may be first sold to a distributor/wholesaler, or may be sold to another manufacturer who build it into their product). The shop marks up the price to cover their own additional costs of sale, and an additional margin, because they're a business that also exists to make a profit, and they're a business with their own indirect costs to cover.
In the case of energy companies, they act as manufacturer, distributor, and retailer. But they operate these businesses separately, so that the retail side can 'legitimately' say "our margin is only 5%" - and this figure almost certainly isn't by accident, as they often compare it to supermarket margins. However there is an additional - far bigger - margin made by the generation side of the business. It's all part of the same company, and the margin is still associated with the same unit of energy.
Now, if they came straight out and said "our margin is 30%" (the likely true margin including generation and retail), people who don't understand margins - or politicians looking to win a few votes - would be infuriated. However, that kind of outrage might actually lead to lower prices, because it would make the energy companies incredibly uncomfortable - they wouldn't be able to disguise their true margins or plead poverty.
Finally I'm not sure what your point is about prices in Europe, as this depends on many country-specific factors. It doesn't mean that margins in the UK are lower. For instance, http://www.energy.eu/ shows that we depend far less on imported gas than many of our European neighbours. France, Germany, and Spain import 2 to 3 times as much as the UK, as a percentage. Just because our unit costs are lower, doesn't mean we're getting a better deal.
I've been making this point for ages on here. Don't worry, the industry shills know this to be the absolute truth but are compelled to continue with the company line. It's a very lucrative business at the end of the day and they will protect their (largely unseen) margins with all their might. We've already seen OVO's head honcho subjected to a smear campaign on here (and I'm sure all over other forums). Interesting that not one of the highly paid execs from the Big 6 who were sitting beside him at the meeting attempted to debunk what he said at the time. They were, after all, pretty serious allegations..
I will keep my post brief and simple. Energy prices have tripled in the past ten years,this is not sustainable.In the twenty first century people should not be forced to choose when and if they can afford to heat their homes. Many people live on fixed incomes which are barely subsistence level,even working people are struggling to pay their fuel bills. Other countries in Europe with higher energy costs have especially where older people are concerned much higher pensions. What is the point of OFGEM? an organisation in name only,makes you wonder if staffed by the energy big six. Finally as previously posted a government that has millionaires in it, has absolutely no concept of how it is to try and manage on a tight budget. I wonder how many jumpers the Prime Minister wears at home, I suspect none.It is incredible given the scale of increases in heating and electricity that it has taken so long to reach this level. Fingers crossed everyone for a mild winter.
So EDF actually will delay their price rise for an additional 48 hours from what was anticipated. Yipee!
Do you think EDF knew this was going to happen when they proudly announced their price pledge in front of the parliamentary commitee?
Or was it that having visited parliament and meeting with their counterparts from the rest of the industry, as soon as they got back, they called an emergency board meeting to discuss the fact everyone else was increasing prices, so why were their shareholders not being similarly rewarded? :cool:
Replies
Asking at every possible opportunity if prices will be going up on January 1st and by how much?
Even attempting to enter into a wager I believe is now the standard that was set.
So it's nothing to do with the fact that, when grilled (or rather, lightly warmed) by MPs, the energy company can claim a tiny 5% margin, which is what the retail side is charging. Meanwhile the generation side that sold it to them is making a 30% margin.
Don't get me wrong, I'm not the type of person who mindlessly criticises private companies for making a profit. I understand that they aren't charities. But at the same time, having a supply chain contained entirely within your own company and then pretending your margins are small (because the real profits are hidden in that internal supply chain) is simple dishonesty. Sadly, many consumers would not understand - or like - a 20% margin if the gas was sold directly to them by the generation side, even though this is much lower than an efficient manufacturing company makes when selling its products and would result in a lower price.
As for Centrica putting other companies out of business if they did as they pleased, the EU and the Competition Commission would soon act to break them up if they got anywhere near a monopoly - just look up the company formerly known as BAA. The current cosy club of 6 suits all of them down to the ground - not enough competitors to require real competition (and significant barriers to entry), but enough that no-one could claim a monopoly.
If that's directed at my last comment, then - with the greatest of respect - you've proven my point about misunderstanding margins.
No-one claimed the margin was ridiculous, it's just hidden by the way energy companies operate. A good, efficient manufacturing company will have a far higher margin - maybe 40%, maybe more, depending on the product. But this margin doesn't translate directly to profit for the company; they have other costs (Indirect costs) that are not related to the cost of making their product, but that must be covered by the margin they make. For instance, they will have employees in a payroll department, whose wages must be paid, but those people's costs are not part of the manufacturing cost so aren't included in margins for any given item that the company makes.
The company will then sell the product. Let's assume the simplest kind of supply chain - they sell it on to a shop (in fact it may be first sold to a distributor/wholesaler, or may be sold to another manufacturer who build it into their product). The shop marks up the price to cover their own additional costs of sale, and an additional margin, because they're a business that also exists to make a profit, and they're a business with their own indirect costs to cover.
In the case of energy companies, they act as manufacturer, distributor, and retailer. But they operate these businesses separately, so that the retail side can 'legitimately' say "our margin is only 5%" - and this figure almost certainly isn't by accident, as they often compare it to supermarket margins. However there is an additional - far bigger - margin made by the generation side of the business. It's all part of the same company, and the margin is still associated with the same unit of energy.
Now, if they came straight out and said "our margin is 30%" (the likely true margin including generation and retail), people who don't understand margins - or politicians looking to win a few votes - would be infuriated. However, that kind of outrage might actually lead to lower prices, because it would make the energy companies incredibly uncomfortable - they wouldn't be able to disguise their true margins or plead poverty.
Finally I'm not sure what your point is about prices in Europe, as this depends on many country-specific factors. It doesn't mean that margins in the UK are lower. For instance, http://www.energy.eu/ shows that we depend far less on imported gas than many of our European neighbours. France, Germany, and Spain import 2 to 3 times as much as the UK, as a percentage. Just because our unit costs are lower, doesn't mean we're getting a better deal.
I've been making this point for ages on here. Don't worry, the industry shills know this to be the absolute truth but are compelled to continue with the company line. It's a very lucrative business at the end of the day and they will protect their (largely unseen) margins with all their might. We've already seen OVO's head honcho subjected to a smear campaign on here (and I'm sure all over other forums). Interesting that not one of the highly paid execs from the Big 6 who were sitting beside him at the meeting attempted to debunk what he said at the time. They were, after all, pretty serious allegations..
Do you think EDF knew this was going to happen when they proudly announced their price pledge in front of the parliamentary commitee?
Or was it that having visited parliament and meeting with their counterparts from the rest of the industry, as soon as they got back, they called an emergency board meeting to discuss the fact everyone else was increasing prices, so why were their shareholders not being similarly rewarded? :cool: