Energy price cap - cap the profits

wrf12345

There is declared profit, which is always low to avoid tax, and there is actual profit which can disappear in numerous ways. If, for instance, you can run an offshore callcentre that costs 500,000 quid a year and you put it through the books via a third company for five million, the third offshore company has taken 4.5 million out of the system and the energy retailer has not made paper profits at a high level. The clue is how much accountants get paid by the big companies, it ain't 30k a year.

What we do know is that the poor old consumer pays 23p for energy and the retailers are buying it for 10p, where all that money disappears to is another matter.

mmmmikey

QrizB said:

susansue said:

What do you think?

I think this thread will last 3-4 pages before being closed. During those 3-4 pages, we'll get the usual suspects claiming that energy suppliers are making huge profits by pointing to the financial data of eg. BP and Shell, big petroleum companies who have zero presence in the UK domestic energy market.

We're into the second page, I think you're going to be proved right. I suspect the evil energy overlords won't be losing too much sleep though.

I wonder if there's a way to work standing charges, smart meters and winter holiday allowance in to the same thread? 

I can't help but think we're overlooking the obvious. An awful lot of problems would be solved if we just made energy free for everyone. That way there would be no profits for the evil overlords, no standing charges and no need for smart meters. It wouldn't solve the issue of the loss of winter holiday money fuel allowance though, but I guess we could have publicly funded Victor Meldrew societies for that?

MattMattMattUK

wrf12345 said:

There is declared profit, which is always low to avoid tax, and there is actual profit which can disappear in numerous ways. If, for instance, you can run an offshore callcentre that costs 500,000 quid a year and you put it through the books via a third company for five million, the third offshore company has taken 4.5 million out of the system and the energy retailer has not made paper profits at a high level. The clue is how much accountants get paid by the big companies, it ain't 30k a year.

That is really not not how things work and you are again demonstrating a total lack of understanding. 

wrf12345 said:

What we do know is that the poor old consumer pays 23p for energy and the retailers are buying it for 10p, where all that money disappears to is another matter.

You are again choosing to entirely ignore the transmission costs. It is very easy to claim that there is a huge made up profit if you conveniently choose to more than half of the costs of the energy. 

EssexHebridean

Martin recently did a Radio 5 show with the boss of Ofgem - and it's available as one of his podcast releases. It does a good job of explaining a lot of the confusion that is apparent here, including the difference between energy suppliers and energy producers, and also the profit levels. 

QrizB

wrf12345 said:

What we do know is that the poor old consumer pays 23p for energy and the retailers are buying it for 10p, where all that money disappears to is another matter.

"Where it all disappears to" is a matter of public record.
See page 4 of this pdf:

https://www.ofgem.gov.uk/sites/default/files/2024-11/Summary_of_Changes_to_Energy_Price_Cap_1_January_to_31_March_2025.pdf

EBIT (ie. energy supplier earnings, before interest or taxes) is £43 on a capped tariff of £1738.

QrizB

susansue said:

I can't agree. Look at the energy company profit tracker here. It contains some well known UK names and some dramatic increases.: https://www.endfuelpoverty.org.uk/news/energy-firm-profits-tracker/ 

OK, you've fallen into the usual trap.

1. Most of those companies aren't UK domestic energy suppliers (the ones selling retail energy, per your original post). SSE, for example, sold their domestic supply business to OVO some years ago. Cadent and Electricity North West are districution network operators, they don't supply households with energy. And so on.
   
2. Once you get far enough down the list to find an actual UK energy supplier, you reach OVO and Octopus. Both those companies are shown on the list as having made a net loss since 2020.

Ovo and Octopus are the only two UK domestic energy suppliers on that list. Of the other big names, they've missed:

• British Gas (which os a small part of Centrica);
• EDF (a tiny part of the French EDF Group);
• Scorttish Power (a single business unit of the Spanish company Iberdrola);
• EON UK plc (which is part of Germany's E.ON SE).

If, for example, you look at the accounts for EON UK you'll see tht their operating profit for 2023 was £20M, not the £8B that's claimed by the website you linked. £20M is 1/400th of £8B. And that's £20M on £3.4B of turnover, a profit of 0.58%.

(And as I predicted back in the 2nd reply to this thread, the list of energy companies include BP and Shell. Two global petrochemical companies that just happen to be FTSE listed, so they're commonly thought of as "British" even though the majority of their business is done elsewhere.)

EssexHebridean

I think the thing people tend to miss is that if this was a small business we were talking about, making £43 profit per customer account on, say, 250 accounts, nobody would think that was at all reasonable, there would be calls for them to be given government support, demands that "things must CHANGE!" etc - in case anyone is short a calculator, that would give an income of £10,750 per year.

Scale that up to an entity with 4 million customers, and of course it "feels" to us like a huge sum, but it's not any bigger proportionally than that small business above - the difference is that the small business has the ability to look at their profit margin and realise it's not high enough, and increase it - the energy suppliers cannot do that, and DO not do that, no matter how much people want to ignore the facts! 

booneruk

wrf12345 said:

What we do know is that the poor old consumer pays 23p for energy and the retailers are buying it for 10p, where all that money disappears to is another matter.

I really suspect you've been told this before, but if it's such a money spinner you are welcome to go and start up an energy company. You could donate the massive profit fat you claim there is to charity and be an all-round hero for it!

susansue

Folks here still seem to be denying that energy company profits have increased during the energy crisis. Please explain this away. 

"The original plan was for this support to be offset partly by levies on energy producers. Initially, a windfall tax on oil and gas production profits was introduced at 25%, effective from 26 May 2022 until 31 December 2025.

After the mini-budget fiasco in September 2022, the new Chancellor of the Exchequer, Jeremy Hunt, was determined to reduce borrowing and increased the energy profits levy to 35%. He also extended the levy by three years and introduced the electricity generator levy with a rate of 45%, among other policies (HM Treasury, 2022)."

Source: https://www.economicsobservatory.com/levies-on-energy-profits-can-they-solve-the-uks-cost-of-living-crisis

QrizB

susansue said:

Folks here still seem to be denying that energy company profits have increased during the energy crisis. Please explain this away.

Explain what, exactly? None of that (the "energy profits levy" windfall tax on oil & gas, or the "electricity generator levy") has anything to do with your original point:

susansue said:

Energy company profit is the difference between the wholesale price they buy at and the retail price they charge us. They set this retail price.
So why do their profits rise with each increase in the cap?

Oil and gas extraction companies do not supply retail energy in the UK. Electricity generating companies do not supply retail energy in the UK. On the contrary, they are responsible (in part) for the wholesale price of energy - the bit you're accusing the suppliers of bumping up needlessly.