Energy bills - possibly 40% up this winter!!!

Cardew

Again who said companies don't buy ahead at agreed prices? Mainly on contracts with the producers, but obviously some on the futures markets.

They buy some at spot prices, but even if they get some at 'bargain' prices that is offset against the times when spot prices were high.

I don't know how many times I have to say that their fixed price tariffs are not underwritten years in advance by future purchases where the traders/ speculators are taking the risk - which is your contention.

Premier_2

Who's talking years in advance? The 2009 deal is in effect just over 12 months. The 2011 deal ends end 2010 - about 18 months.

I think it's you who confused the issue bringing in the 15 years.

So could you clarify. Do you now accept that companies buy energy on the futures market at an agreed price, or are you still not believing this?

Cardew wrote:

As for the Utility companies having had their fixed tariffs underwritten on the futures market, I cannot believe you are seriously suggesting that this has occurred.

Cardew wrote:

...who said companies don't buy ahead at agreed prices...

If you still don't agree, perhaps you could take another look at thoses annual reports you read and see where it takes into consideration the risk the company is exposing itself to by offering it's customers a fixed price in the future without having any idea if they can't even buy their stock at that price in the future.
Shareholders have a right to know if a company is gambling with it's survival.


Edit: Here's a good starting point! Centrica 2007 annual report (ca. 9.4Mb), page 25. Commodity prices.
http://www.centrica.co.uk/files/reports/2007ar/files/2007_annual_report.pdf

withabix

Premier wrote: »

The 2011 deal ends end 2010 - about 18 months.

The 2011 deal ends on 28th February 2011. I make that nearly 32 months...

Cardew

Premier,
I don't know if you are being deliberately obtuse or your latest posts are just an attempt at obfuscation.

With regard to fixed/capped price contracts, you stated:

energy companies buying energy on the futures market at a pre-determined rate. The people taking the risk here are the traders/speculators.

So as you asked for clarification; I quite simply am saying that is not the case!

If you really need it spelt out, companies do buy on the futures market but not 3 years and 4 years in advance for sufficient energy for millions of customers on fixed tariffs.

Firstly shall we talk about length of these capped deals.

The BG deal I am on ran from 29th Nov 2005 and runs to April 30th 2010.

The current 2011 offers have been on offer for some months and were for approx 3 years.

I accept that you might be confused about the 15 year statement as you apparently do not appreciate the difference between a deal on the Futures market which is at a fixed price, and an agreement to buy an agreed quantity of energy from the supplier for the next, say, 15 years at a price that is not fixed xx years ahead, but is governed by market prices.

Now you have made the statement in the quote above - so the onus is on you to prove that statement.

This charade of trying to get me to 'prove a negative' will just not wash.

You don't normally post rubbish - but this quote is the exception

If you still don't agree, perhaps you could take another look at thoses annual reports you read and see where it takes into consideration the risk the company is exposing itself to by offering it's customers a fixed price in the future without having any idea if they can't even buy their stock at that price in the future.
Shareholders have a right to know if a company is gambling with it's survival.

Why on earth would any company even dignify such a stupid assertion of gambling with its survival, even if it had been made to them before the report was issued? How could I possibly find a defence of an accusation that has no merit and has never been raised by anyone except yourself.

The issue between us is quite simple. You say 3/4 year fixed tariffs are underwritten by traders/speculators - I am asking you to prove your statement.

So please let us end this long winded discussion by you backing up your statement, or letting it rest.

Premier_2

Look back at the posts, I think it was you who said:

Cardew wrote:

...I am aware of the futures market in commodities and how it operates...

You who said:

Cardew wrote:

... why is it forecast that prices will rise 40 -50% this year. Could it just possibly be that the futures market is indicating such a rise?

That's one heck of a risk to be agreeing to sell power to consumers at that time at only a 10% premium (unless of course it's been hedged in some way, perhaps by having bought forward when future prices were not so high!)
Risks like that have to be disclosed in annual reports. Have a look at the centrica report - it goes into all types of risks. e.g. commodity prices, currency fluctuation, etc.

Cardew wrote:

How could I possibly find a defence of an accusation that has no merit and has never been raised by anyone except yourself.

It's not my wish, it's what the ASB expect!

"Companies need to assess carefully what are their principal risks and uncertainties, and report on those, together with the approach to managing and mitigating those risks, rather than simply provide a list of all their risks and uncertainties."

[FONT=Century Gothic,Century Gothic][FONT=Century Gothic,Century Gothic]A Review of Narrative Reporting by UK Listed Companies in 2006[/FONT][/FONT]
[FONT=Century Gothic,Century Gothic][FONT=Century Gothic,Century Gothic]Accounting Standards Board [/FONT][/FONT]
[FONT=Century Gothic,Century Gothic][FONT=Century Gothic,Century Gothic]http://www.r-r-s.co.uk/library/Disclosure%20Risk.pdf[/FONT]

[/FONT]
Oh yeah, lets remind ourselves how this debate started - you said

Cardew wrote:

The irony is that with all these customers on fixed rate tariffs, the increase for others will be considerably higher to compensate.

If this were true, the result would be as I stated in post# 17

Premier wrote:

Look at it this way, if you think you are correct, companies like npower & scottish power are taking loads of people on at capped/fixed tariffs. Your assumption, if I understand it correctly, is that their customers on variable rate tariffs will be left paying the shortfall that those fixed/capped customers are not paying (assuming as you do that prices are to increase significantly)

Now there are some companies not offering fixed/capped rate tariffs so if you are right, it would be logical that those companies will soon be able to offer significant savings over npower/sp on their variable rate tariffs. Time will tell, but surely if npower/sp variable rates become uncompetitive, we'll see a mass migration of those customers to the cheaper suppliers. That leaves an even greater burden on the variable rate customers remaining and so will drive prices even further upwards, meaning even more will leave...

Ultimately only those on fixed/capped rates with the current suppliers will remain there, paying less than the cost of power the energy company is buying at. What will happen then? Think about it.

Since your post on how you think fixed/capped rates are financed, you appear to have been backpeddling faster than a unicyclist on a steep slope!

You now agree energy is bought by energy supply companies on the futures market, you now agree futures are for an agreed fixed price (not market price at the time of supply), you even have tried to suggest the energy companies are funding the fixed price by balancing it with the premium consumers pay today!

So what is it? Do the companies offering fixed/capped deals already have their risks hedged against or are they going to force their variable rate customers to pick up the bill?


P.S. I can't prove what you keep asking me to prove for the reasons given at the start of post#17

Premier wrote:

Of course I cannot give you proof.
(a) I don't work for the energy supplier and (b) if I did, I couldn't disclose the proof as it would be considered commercially sensitive data.

If, as you argue, it is a matter of public record, can you post me proof of how much one of those energy companies that you now agree is buying on the futures market has paid for their fuel and for what delivery date?

Cardew

I say again - you made the statement on speculators taking the risk - prove it!

Premier_2

Cardew wrote: »

I say again - you made the statement on speculators taking the risk - prove it!

How?

Cardew

Premier,

My contact told me to watch this - I did!

If you have a few hours to spare! Perhaps you would like to watch it as well:

http://www.parliamentlive.tv/Main/VideoPlayer.aspx?meetingId=2102&rel=ok

In particular cross-subsidising by customers, and all future supply prices indexed against the oil price.

SwanJon

Suppliers probably subsidise fixed rates through all of the above.
The premium obviously helps - they buy a few seasons in advance so can spread any changes out, they have long term contracts to buy from generators/producers at variable rates (less negotiations - cheaper than negotiating each year), they own their own power stations & gas fields which also helps balance.

One of the other benefits to a supplier of a fixed rate deal is the reduced switch rate. If SP sign 1 million people up to 2011 they have tied them in.
Another thread suggested that suppliers profit about $50 from each customer.
It costs about that much to get a new customer, or regain an old one so that is another (possibly) significant saving.

Premier_2

Thanks, it's 3 1/2 hour meeting that apparently took place this morning.

Any particular part of the meeting you'd care me to take note of in particular? Perhaps you could provide the exact time you refer to.