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

Premier_2

SwanJon wrote: »

...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...

I guess you could claim this to be true with their latest deal since it has a £50 exit fee, but until recently I don't think any one was tied to fixed deals with any supplier - they were free to switch just as all other customers are.

SwanJon wrote:

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.

Over what period does it take a supplier to earn $50?
BG are currently paying at least twice that in marketing costs alone to sign up new customers and EON almost 3 times that amount

Cardew

Premier wrote: »

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.

I watched some of it live and some of it on that link so I don't know exact times.

However you will get the message from all of the bosses of the 'big 6' that nearly all their supplies are bought at the current market price or they have long term contracts that are indexed to the price of oil at the time of delivery.

The problem is that the UK can only store about 18 days supply of gas(France 102 days Germany 90) - we 'store' most of ours under the North Sea. So if North Sea gas is very cheap in the Summer(despite cutting back on production) the producers have no option to sell it to France and Germany at a low price and we buy it back at the(high) market price in the winter.

The point being absolutely clear that the supplies are not 'underwritten' on the futures market but can be sold at a loss.

It was also stated unequivocally that the top end customers subsidise the bottom end.

However don't take my word for it - have a listen. Or in a while the complete transcript will be available.

Sol00

I don't know anything about how energy is produced and stored etc.

Why can the UK only store 18 days worth and France and Germany store much more supply?

Cardew

Sol00 wrote: »

I don't know anything about how energy is produced and stored etc.

Why can the UK only store 18 days worth and France and Germany store much more supply?

As I said we used to 'store' ours under the North Sea. i.e. we just took enough for our needs.

Now we have to import some gas, we are building more storage.

withabix

SwanJon wrote: »

SIf SP sign 1 million people up to 2011 they have tied them in.

If you are already a Scottish Power customer, you are not tied in on the 2011 fixed rate. If a cheaper deal comes along you are free to switch to it or to leave for another supplier with no penalty.

The same is not true for some newer deals - there is a £50 exit fee and a tie-in period I believe.

Cardew

I don't think that Swanjon meant 'tied in' literally.

BG for example have 2.4 million on fixed price contracts. Mine is to 30/04/2010 and whilst I could leave, I would be silly to do so as all available tariffs are considerably more expensive.

Premier_2

Cardew wrote: »

I watched some of it live and some of it on that link so I don't know exact times.

However you will get the message from all of the bosses of the 'big 6' that nearly all their supplies are bought at the current market price or they have long term contracts that are indexed to the price of oil at the time of delivery.

The problem is that the UK can only store about 18 days supply of gas(France 102 days Germany 90) - we 'store' most of ours under the North Sea. So if North Sea gas is very cheap in the Summer(despite cutting back on production) the producers have no option to sell it to France and Germany at a low price and we buy it back at the(high) market price in the winter.

The point being absolutely clear that the supplies are not 'underwritten' on the futures market but can be sold at a loss.

It was also stated unequivocally that the top end customers subsidise the bottom end.

However don't take my word for it - have a listen. Or in a while the complete transcript will be available.

So, that being the case, the BBC item linked to that states:

Major UK energy companies may be unable to take advantage of the free gas because of the lack of available storage and the fact that they have "hedged" supplies - protecting themselves against the risk of high gas prices over the winter by buying it in advance at a lower price. "You won't see the effect from this on lower domestic bills until after the winter," Mr Bowden said. [chief executive of energy services company Utilyx.]

is total hogwash. Perhaps you'd like to bring this to the attention of your local MP and demand answers from the "big 6" as to why they were charging consumers high rates in October 2006 when the market price was in negative teriitory (i.e they were being paid to take it)

Premier_2

Cardew wrote: »

I don't think that Swanjon meant 'tied in' literally.

BG for example have 2.4 million on fixed price contracts. Mine is to 30/04/2010 and whilst I could leave, I would be silly to do so as all available tariffs are considerably more expensive.

So what do you think he means?

What's the point in retaining customers if, as a supplier, you are "tied" to a contract where it may cost more to actually supply than what the customer is paying?
Surely, a supplier wants to retain customers from which they earn a profit ... and the bigger the profit the better? If a supplier is earning a profit from that customer, then there is always a possibility of another supplier undercutting the price unless that customer is otherwise tied in e.g. by imposing a financial penalty to be released

Premier_2

Cardew wrote: »

...It was also stated unequivocally that the top end customers subsidise the bottom end...

Could 'bottom end' in this instance refer to those on pre-payment meters or even those on the 'social tariffs' for those on low incomes, benefits etc?

Premier_2

Here's a quote from Mr Paul Trimmer, Vice President, NW European Business Operations, Shell from a meeting held 17 June 2008, relating to how prices are set for the wholesale market, and the various options available.

I have to be careful about competition law here and so I shall not go into detail, but we now have about 12 - we are creating up to 22 - what we call value propositions, some of which are fixed and some of which are floating. Therefore, the customer can make quite a choice at the time the contract is signed, and there are even arrangements that allow the customer to move from one to the other in the middle of the contract. If they choose to have a price which is linked to, say, the day or month ahead gas price that is their choice, but it is not the only thing that is around in the marketplace. Maybe they lament the fact that they did not lock in something earlier. I do not know.

http://www.publications.parliament.uk/pa/cm200708/cmselect/cmberr/uc293-v/uc29302.htm

What do you think he means by that, if not confirming that fixed prices agreed in advance are not made available?

Edit:
It you read the link in full, you'll see that only around 40% of deals are off-market (long term 15 year supply type contract deals referred to by Cardew) contradicting the view from energywatch that assumed it was about 80%, leaving the remainder to be conducted in the open market.

Q656 Mr Wright: What is said is that 80% of the total production is already committed in off-market contracts which are being negotiated behind the scenes in secret, leaving only 20% to be traded, which obviously determines the price. You are telling me that it is approximately 40% on the off-market as opposed to 60% that can be traded on the open market.
Mr Trimmer: I do not know whether this is another example of slightly different definitions or interpretations of a word, but I can tell you that the traded market is definitely at 20% to 25% and the industrial and commercial sector, which is one or two-year contracts, is NBP-linked and that is another 40%. That leaves the last 35% to 40% under the old-style contracts which are described in that way.
Mr Guerrant: ExxonMobil is not involved in the industrial sector. We put either all of our gas into the wholesale NBP market or it is subject to existing old-style historic contracts. Our split is about 38% in old-style contracts and the remainder goes to the wholesale market. If he says that 80% is in the long-term market it does not make sense for my company and, from what I hear, for others.

Q657 Mr Wright: Is it true that the forward prices are used as a basis for many of the off-market contracts?
Mr Guerrant: We start to get into commercially sensitive matters. Let me talk here in conceptual terms; I will not talk about the specifics of my company. Generally speaking, based on my knowledge of the UK a proportion of the old-style contracts are linked to oil; a proportion are linked to the PPI; and a proportion are linked to electricity and coal. The splits can vary.