How much did the energy companies share the burden of the price increases?

peter021072

I recall someone once saying that the suppliers were effectively nationalised due to the constraints put on them by the energy price caps.  This implied they were sharing the burden.  In which case could someone tell me why Centrica's share price has doubled since Russia's invasion of Ukraine and why consumers are so apathetic?

MattMattMattUK

peter021072 said:

I recall someone once saying that the suppliers were effectively nationalised due to the constraints put on them by the energy price caps. 

They were not effectively nationalised. They were forced to sell at below cost for nine months which is why so many of them went bust and since they have their profit capped at 1.9%, they were also made to administer the EPG and EBSS. 

peter021072 said:

This implied they were sharing the burden. 

That is incorrect.

peter021072 said:

In which case could someone tell me why Centrica's share price has doubled since Russia's invasion of Ukraine

Centrica's share price has increased because their global profitability and the value of the fossil fuel reserves they own has increased. Around 4-6% of Centrica's profits are made within the UK, most of the profit comes from their global operations where they extract, process and refine fossil fuels on every continent or on the continental shelves of every continent other than Antarctica. 

peter021072 said:

and why consumers are so apathetic?

It depends what you mean by apathetic. May people will understand the global situation, those people accept that prices have increased even if they do not enjoy that fact. Many others have had tantrums about it and complain that they do not think they should pay the market price for energy, that profit is evil etc. 

Dolor

Similarly, BP and Shell. Most of profits are made outside of the UK so tax is paid in numerous jurisdictions around the World. Wholesale prices are driven in the main by global demand and supply. For example, OPEC has recently reduced its oil output so petrol prices in the UK are on the rise again as a result of increasing wholesale prices.

International companies also have international shareholders. Many of these are pension and investment funds.

Finally, I think that we need differentiate between a Cap which limits the maximum amount that suppliers can charge (with the caveat that there is nothing stopping them from reducing their prices by 50% other than potential business failure) and Nationalisation. The latter would require UK taxpayers to spend £Bn buying out existing shareholders.

the_lunatic_is_in_my_head

peter021072 said:

 why consumers are so apathetic?

There is a concept called capitalist realism, the idea that capitalism, whilst not ideal, is the only viable system under which to live as the alternatives are far worse. 

The issue with this view point is that it stifles new ideas or looking towards how old/alternative ideas could work with changes. 

Ultimately the main issue is profit, most of which lies with the extraction companies working across the global. Energy, water and to some extent food are things that should, IMO, be provided without a profit element. There is of course a large question of how that could be achieved and, as appears to be the case, whether it is the profit element that is the driver of an organisation's desire to be efficient and innovative. 

This all boils down to a very philosophical point of whether the pursuit of profit is a manifestation of being the alpha or of survival of the fittest, which appears to be the case, as the billionaires will live a long and healthy life with access to clean air, quality food and the best health care in the word, compared to those living in filth whilst being exploited in third world countries so the profit element can be maximised.

And here we sit in the middle, paid off with comfort and convenience, on the one hand we are extremely lucky compared to the vast majority of the human race, on the other far more people could have higher standards of living without the vast inequality of wealth the current system creates and of course there could be a lot less destruction to our planet as well. 

I should add that under an idea without profit and less wealth inequality, it is the exploited further down the ladder who would benefit the most, we're all exploited to a degree but many at our level would view giving up the comfort and convenience for what could be a better way of life as a step backwards and there's perhaps nothing wrong with that but it does go hand in hand with global companies sitting on vast amounts of wealth and power meaning tough luck on your energy bill   

born_again

Dolor said:

Similarly, BP and Shell. Most of profits are made outside of the UK so tax is paid in numerous jurisdictions around the World. Wholesale prices are driven in the main by global demand and supply. For example, OPEC has recently reduced its oil output so petrol prices in the UK are on the rise again as a result of increasing wholesale prices.

International companies also have international shareholders. Many of these are pension and investment funds.

Finally, I think that we need differentiate between a Cap which limits the maximum amount that suppliers can charge (with the caveat that there is nothing stopping them from reducing their prices by 50% other than potential business failure) and Nationalisation. The latter would require UK taxpayers to spend £Bn buying out existing shareholders.

Just look at how much Bulb cost the tax payer & think how much more the cost would be if the rest were included never mind the compensation that would be required to be paid out to the current owners.

Dolor

born_again said:

Dolor said:

Similarly, BP and Shell. Most of profits are made outside of the UK so tax is paid in numerous jurisdictions around the World. Wholesale prices are driven in the main by global demand and supply. For example, OPEC has recently reduced its oil output so petrol prices in the UK are on the rise again as a result of increasing wholesale prices.

International companies also have international shareholders. Many of these are pension and investment funds.

Finally, I think that we need differentiate between a Cap which limits the maximum amount that suppliers can charge (with the caveat that there is nothing stopping them from reducing their prices by 50% other than potential business failure) and Nationalisation. The latter would require UK taxpayers to spend £Bn buying out existing shareholders.

Just look at how much Bulb cost the tax payer & think how much more the cost would be if the rest were included never mind the compensation that would be required to be paid out to the current owners.

The Jury is still out on the cost of the Bulb failure to taxpayers:

https://news.sky.com/story/taxpayers-bulb-bailout-cost-plunges-after-octopus-supply-deal-with-government-12812525

The main reason for suppliers going over the cliff like Lemmings was Ofgem’s failure to loosen the price Cap. This resulted in suppliers being forced to sell energy at below wholesale prices. The second reason was some supplier’s were taking a punt by not hedging future supply a knowing that the regulations allowed them to do so.

Spoonie_Turtle

peter021072 said:

I recall someone once saying that the suppliers were effectively nationalised due to the constraints put on them by the energy price caps.  This implied they were sharing the burden.  In which case could someone tell me why Centrica's share price has doubled since Russia's invasion of Ukraine and why consumers are so apathetic?

Because Centrica is not a domestic energy supplier in Britain.  (I don't think they are anywhere, but that's irrelevant as you're only talking about suppliers and the energy cap that applies here.)

MeteredOut

Dolor said:

born_again said:

Dolor said:

Similarly, BP and Shell. Most of profits are made outside of the UK so tax is paid in numerous jurisdictions around the World. Wholesale prices are driven in the main by global demand and supply. For example, OPEC has recently reduced its oil output so petrol prices in the UK are on the rise again as a result of increasing wholesale prices.

International companies also have international shareholders. Many of these are pension and investment funds.

Finally, I think that we need differentiate between a Cap which limits the maximum amount that suppliers can charge (with the caveat that there is nothing stopping them from reducing their prices by 50% other than potential business failure) and Nationalisation. The latter would require UK taxpayers to spend £Bn buying out existing shareholders.

Just look at how much Bulb cost the tax payer & think how much more the cost would be if the rest were included never mind the compensation that would be required to be paid out to the current owners.

The Jury is still out on the cost of the Bulb failure to taxpayers:

https://news.sky.com/story/taxpayers-bulb-bailout-cost-plunges-after-octopus-supply-deal-with-government-12812525

The main reason for suppliers going over the cliff like Lemmings was Ofgem’s failure to loosen the price Cap. This resulted in suppliers being forced to sell energy at below wholesale prices. The second reason was some supplier’s were taking a punt by not hedging future supply a knowing that the regulations allowed them to do so.

I'd argue the main reason is your second point. Agreeing to sell something to your customers for a fixed price when you are buying it at market rates (for those that did not hedge), and with the knowledge that you ability to alter prices is constrained by regulation, is irresponsible, if not verging on incompetent.

spot1034

MeteredOut said:

Dolor said:

born_again said:

Dolor said:

Similarly, BP and Shell. Most of profits are made outside of the UK so tax is paid in numerous jurisdictions around the World. Wholesale prices are driven in the main by global demand and supply. For example, OPEC has recently reduced its oil output so petrol prices in the UK are on the rise again as a result of increasing wholesale prices.

International companies also have international shareholders. Many of these are pension and investment funds.

Finally, I think that we need differentiate between a Cap which limits the maximum amount that suppliers can charge (with the caveat that there is nothing stopping them from reducing their prices by 50% other than potential business failure) and Nationalisation. The latter would require UK taxpayers to spend £Bn buying out existing shareholders.

Just look at how much Bulb cost the tax payer & think how much more the cost would be if the rest were included never mind the compensation that would be required to be paid out to the current owners.

The Jury is still out on the cost of the Bulb failure to taxpayers:

https://news.sky.com/story/taxpayers-bulb-bailout-cost-plunges-after-octopus-supply-deal-with-government-12812525

The main reason for suppliers going over the cliff like Lemmings was Ofgem’s failure to loosen the price Cap. This resulted in suppliers being forced to sell energy at below wholesale prices. The second reason was some supplier’s were taking a punt by not hedging future supply a knowing that the regulations allowed them to do so.

I'd argue the main reason is your second point. Agreeing to sell something to your customers for a fixed price when you are buying it at market rates (for those that did not hedge), and with the knowledge that you ability to alter prices is constrained by regulation, is irresponsible, if not verging on incompetent.

However there was also the problem that many suppliers, including those who had behaved responsibly and  done everything by the book - e.g. Zog - were faced with the problem of customers who came to the natural end of their fixed contracts and the supplier was then obliged to supply them at the price cap which during that winter was way below wholesale cost - in other words they were forced by the regulator to sell at a loss, and those without large reserves of cash just couldn't do that for very long.

Dolor

spot1034 said:

MeteredOut said:

Dolor said:

born_again said:

Dolor said:

Similarly, BP and Shell. Most of profits are made outside of the UK so tax is paid in numerous jurisdictions around the World. Wholesale prices are driven in the main by global demand and supply. For example, OPEC has recently reduced its oil output so petrol prices in the UK are on the rise again as a result of increasing wholesale prices.

International companies also have international shareholders. Many of these are pension and investment funds.

Finally, I think that we need differentiate between a Cap which limits the maximum amount that suppliers can charge (with the caveat that there is nothing stopping them from reducing their prices by 50% other than potential business failure) and Nationalisation. The latter would require UK taxpayers to spend £Bn buying out existing shareholders.

Just look at how much Bulb cost the tax payer & think how much more the cost would be if the rest were included never mind the compensation that would be required to be paid out to the current owners.

The Jury is still out on the cost of the Bulb failure to taxpayers:

https://news.sky.com/story/taxpayers-bulb-bailout-cost-plunges-after-octopus-supply-deal-with-government-12812525

The main reason for suppliers going over the cliff like Lemmings was Ofgem’s failure to loosen the price Cap. This resulted in suppliers being forced to sell energy at below wholesale prices. The second reason was some supplier’s were taking a punt by not hedging future supply a knowing that the regulations allowed them to do so.

I'd argue the main reason is your second point. Agreeing to sell something to your customers for a fixed price when you are buying it at market rates (for those that did not hedge), and with the knowledge that you ability to alter prices is constrained by regulation, is irresponsible, if not verging on incompetent.

However there was also the problem that many suppliers, including those who had behaved responsibly and  done everything by the book - e.g. Zog - were faced with the problem of customers who came to the natural end of their fixed contracts and the supplier was then obliged to supply them at the price cap which during that winter was way below wholesale cost - in other words they were forced by the regulator to sell at a loss, and those without large reserves of cash just couldn't do that for very long.

Zog had another issue. Its wholesaler with which it was hedged went bust.

’ The founders attributed Zog’s failure to the withdrawal of Contract Natural Gas (CNG) from the wholesale gas market earlier this month. CNG went into administration in early November, with both its business energy supply and wholesale arms shuttering. 

CNG was under pressure from soaring wholesale natural gas prices and the failure of several of its major customers, including suppliers Avro, Green, and Igloo.

At the time, there were fears that its closure would cause a domino effect and topple its other wholesale customers. That seems to have come to pass with the shuttering of Zog Energy.’

peter021072

Spoonie_Turtle said:

peter021072 said:

I recall someone once saying that the suppliers were effectively nationalised due to the constraints put on them by the energy price caps.  This implied they were sharing the burden.  In which case could someone tell me why Centrica's share price has doubled since Russia's invasion of Ukraine and why consumers are so apathetic?

Because Centrica is not a domestic energy supplier in Britain.  (I don't think they are anywhere, but that's irrelevant as you're only talking about suppliers and the energy cap that applies here.)

They are the parent company of British Gas, the biggest energy supplier in the country.