How do energy suppliers charge different prices for same product?

michellelund

Please be gentle, I can't find an answer to this anywhere on the WWW:

How do energy suppliers charge different prices for the same physical product?

When I switch supplier, company A doesn't come and pump out their flavor of gas from my pipes, then company B pumps in their gas....

How in God's name does this even work?

My only guess is it's energy brokers in investment banks hedging and other complicated trading?

korky69

total guess
but i'd think the more punters they reckon they'll grab the bigger discount for buying the energy of the supplier,
some have smaller overheads,
once they have 1m customers half will not switch and pay the higher price.

Bluebirdman_of_Alcathays

michellelund wrote: »

Please be gentle, I can't find an answer to this anywhere on the WWW:

How do energy suppliers charge different prices for the same physical product?

When I switch supplier, company A doesn't come and pump out their flavor of gas from my pipes, then company B pumps in their gas....

How in God's name does this even work?

My only guess is it's energy brokers in investment banks hedging and other complicated trading?

If you run a business, the raw material is only 1 component of your overheads.

The big 6 know their customer base is more inelastic than others, and can charge higher prices.

..... Are 2 of just a number of reasons prices can vary. An economics textbook would be a wise investment if you're genuinely curious

michellelund

Thanks. That was what I was thinking.

Sadly, the entire thing is so complicated I fear that nobody really knows exactly how it works.

robin58

Supply.
Demand.
Area.

And because they can get away with it.

Water in my area is supplied by Essex & Suffolk. Sewerage is done by Anglian Water. Stuck with the one price. No choice in supplier.

Hence the above 3 reasons.

(OK things are regulated. But please don't make me laugh too much.)

Pincher

My guess is:


Ofgem is run by a friend of Sepp Blatter


They both belong to an organisation whose Grand Master is Silvio Berlusconi


It's funny, I used to think Keiser Report on Russia Today was full of made up propaganda, but it really seems like bankers never go to jail, and regulators just fine the big companies peanuts, who just write them off against taxes.


Take their license to sell energy away. There's a reason they had public executions in the old days, it sets an example, otherwise they could just do a private throat slitting in a shower room somewhere, and flush the blood away.






You can also subscribe to the view point that they are supposed to gouge as much money out of the customer as they can, fiduciary duty to the shareholder and all that. The customer should come first: always thought that sounded a bit strange for a public company.

Richie-from-the-Boro

Unregulated capitalism .................. and an aggressively free market attitude towards energy.

French & Spanish energy prices, though high, are tied to inflation. French and Spanish-owned companies however continue to relentlessly hammer UK customers with big price rises and make extortionate profits for their shareholders because the UK is effectively unregulated.

Just one example - BG Sam Laidlaw earns £36k per week & £2mi££ion bonus, outgoing BG boss £13 mi££ion in pay shares and pension.

EDF Energy - French-owned. Dividend payout rate 07-11 - 74% / E.ON Energy - German-owned. Dividend payout rate 07-11 - 58% / nPower - also German-owned. Dividend payout rate 07-11 - 56% / Scottish Power - Spanish-owned. Dividend payout rate 07-11 24%

[Deleted User]

Costs of transportation is the big difference. I live in South Yorks, surrounded by power stations, big gas site on the East Coast at Kilnsea . so less distance to get the product to my house.Also, how much each supplier spends on customer services/metering/ and revenue protection. BG spend more on this than any of the others and have the best run systems.

Bark01

Regional differences are caused by changes in transportation and distribution charges and there will also be an element of acquisition strategy, i.e.. if you want customer in a certain region you reduce the cost although this will have little actual impact on the bill.

Differences between suppliers are caused by different overheads I.e.
Large suppliers have the benefit of economies of scale but smaller suppliers have less ECO costs. Some suppliers spend more on marketing some suppliers spend less on customer service and move it abroad.

And then there is hedging... The prices energy suppliers pay for the energy you use changes by the hour but can be brought in advance generally up to 3 years in advance. The way suppliers hedge is different not only between supplier but also between products in any given suppliers portfolio. Hedging is the biggest cause for different prices.

Hedging is the reason smaller suppliers are cheap at the moment. Smaller suppliers can't afford to have a large hedging window that goes out years in advance so they buy more energy on the day to day market. At the moment prices are falling so the bulk of the energy brought by the smaller suppliers is at today's cheap rate. Where as larger suppliers are stuck with energy purchased at a higher rate in the past. When prices go back up next year the smaller suppliers will be hit with higher day to day prices so will have to rapidly increase prices to cope. Where as larger suppliers will be able to absorb the prices for longer.

I'd imagine quite a few of the smaller suppliers will begin to struggle in 2016.