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

Cardew

Premier,

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.

I believe you know exactly what those quotes mean and you are simply being disingenuous in an attemp to save face.

As I said, they do indeed have long term contracts, but these are indexed(linked) to the price of oil etc.

That is very different from your contention they have bought ahead on the future market to cover the fixed price deals and the risk is taken by speculators. - and not to do so would incur the wrath of their shareholders.

You know full well are are wrong on this issue!!

OR

Just give me any statement to prove your contention e.g. that the fixed price tariff customers energy has been bought years ahead on the futures market at a price and that the speculators are taking the risk.

Premier_2

Cardew, your previous post relates to the 40% of long term supply contracts traded off market!

I've never denied this does exist and the fact they are related to various price indices is the reason why our prices go up and down with market tends ... to an extent.

But there is 60% that is traded on the open market!

I have never said all energy is bought ahead on fixed price contracts (i.e. futures), but some clearly is else please address the questions posed.
If, as you imply, everything is based on current market prices, please explain what happened in October 2006.

May I remind you again what started this discussion - it was your post#7

Cardew wrote:

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

I fixed my prices with BG in 2005 and it will stay fixed until April 30th 2010, and I guess a sizeable percentage of BG's customers did the same, and also took their other fixed rate deals.

The companies simply cannot lose here. They 'need' to raise an extra £xxx million in revenue and if, say, half of their customers are on fixed rate tariffs, then the other half will foot that bill.

My disagreement with you is not to be buried in the intricacies of how the supply companies hedge their exposure - but simply to assert that your belief expressed that all the exposure is to customers on non-fixed rates who you believe subsidise those customers on fixed rates is misguided.

I have provided evidence by the bucket-load to explain why I believe you are wrong; please provide counter evidence to support your belief - and preferably something a little more specific than listen to a 3.5hr broadcast for the evidence.

Cardew

Premier,

You are simply not going to get off the hook on this one.

This is what you stated - which started this discussion( my bolding)

You don't think the energy supply companies are funding these fixed rate offers do you, Cardew?

A future is not an agreement to purchase something in the future at an unspecified price; the price has to be specified!

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

Do you really think energy companies could act so irresponsibly in this way?

Now I have stated, and indeed all those who gave evidence to the Parliamentary committee have stated that they have long term contracts but these are all linked(indexed) to the oil price etc at the time of delivery.

As you eloquently point out that is very different to having bought on the futures market at a 'specified' price to underwrite the fixed term contracts.

The headline comment from the boss of Centrica(BG) that was shown on TV clips stated:

‘we are currently buying on the market at £1 a therm and selling it to our customers at 60p a therm; that is not a sustainable position’

Now I had my price with BG fixed in 2005 and a lower price than BG are currently charging and it will remain at that price until 2010.

Yet your very firm contention is that BG have underwritten those prices by buying on the futures market(at a fixed specified price) for myself and the 2.4 million other customers on fixed tariffs – so they were covered in the event prices rose in the following 5 years, and it is the speculators that will stand the loss if they rise.

You clarified that contention with this quote:

Traders/speculators don't always get it right, as the 5 year deal you have proves.

So please stop this attempt at obfuscation and justify your statements.

Premier_2

Cardew, if it makes you happy:

I'm wrong! 100% wrong! ...totally wrong!.

Right, now we've put that to bed are you still trying to defend your post #7.

I'm not interested in me losing face, getting off the hook or any other such nonsense - I'm just trying to ensure that people are not mislead by your post implying those on non-fixed rates will be totally subsiding those on fixed rate, assuming prices increase generally.

Would you care to clarify whether this was what you intended to imply, and if so whether you still believe it to be correct?

John_3:16

I am not getting in to this one you boys can play on your own.;) But?

All those who have taken a fixed rate deals out at above the going rate( Like myself) I asume we are helping out all those who are paying spot prices. My fixed rate know is 20% more than I could be paying.

Cardew

Premier wrote: »

Cardew, if it makes you happy:

I'm wrong! 100% wrong! ...totally wrong!.

Right, now we've put that to bed are you still trying to defend your post #7.

I'm not interested in me losing face, getting off the hook or any other such nonsense - I'm just trying to ensure that people are not mislead by your post implying those on non-fixed rates will be totally subsiding those on fixed rate, assuming prices increase generally.

Would you care to clarify whether this was what you intended to imply, and if so whether you still believe it to be correct?

Premier,
Not the most gracious retraction I have seen; but no matter it will do!

What I stated in post 7 was:

The companies simply cannot lose here. They 'need' to raise an extra £xxx million in revenue and if, say, half of their customers are on fixed rate tariffs, then the other half will foot that bill.

Now I really can’t be any clearer than that, so of course I totally stand by that statement.

We can take the case of BG as an example, although the same principle applies to all the other Utility companies who have customers on fixed price tariffs.

I will use round figures to make the arithmetic easier.

BG have 10 million customers of which 2.4 million(that is an actual figure by the way) are on fixed price tariffs.

Let us say that BG need to raise £1,000,000(£1billion) in extra revenue. For each of their 10 million customers that would be an average extra charge of £100.

However 2.4 million customers are protected against any rise, as they enjoy a fixed tariff, so that £1billion is borne by the remaining 7.6 million customers and their average extra charge will be £131.

As I said before they were quite open in stating that “that the top end customers subsidise the bottom end”

In answer to the point you raise above, that does indeed include those on ‘social tariffs’ are having their cheaper prices funded by other customers; the bosses of Centrica and Scottish and Southern made that clear.

I seriously cannot see how you can envisage any other way it could work.

Premier_2

Cardew wrote: »

...BG have 10 million customers of which 2.4 million(that is an actual figure by the way) are on fixed price tariffs.

Let us say that BG need to raise £1,000,000(£1billion) in extra revenue. For each of their 10 million customers that would be an average extra charge of £100.

However 2.4 million customers are protected against any rise, as they enjoy a fixed tariff, so that £1billion is borne by the remaining 7.6 million customers and their average extra charge will be £131...

As I explained way back in post# 17, if suppliers were penalising their non-fixed rate customers by higher prices to pay the losses suffered by those on a fixed rate (let's agree with the £131 example to avoid further arguements) they won't be attracting new customers because other suppliers have not done this - not every supplier has offered fixed rate tariffs. Others suppliers will be £131 cheaper. (all things being equal)
Not only that but lets say half of those now paying over the odds decide to switch to those lower suppliers elsewhere, then the remaining BG non-fixed customers will need to fork out £262 extra per year. That in turn will force more to leave.
Eventually BG will only have the loss making customers on the fixed rate tariffs left, if this continued.
To be honest it couldn't continue following this scenario because the last non-fixed rate customer would be paying £1billion to keep BG in the black. I'm sure a bill like that would tempt even the most reluctant to switch supplier. What would actually happen is BG would take the hit and lose £1billion. Guess what happens to companies that lose money continuously (and I don't mean they get nationalised either!)

Cardew wrote:

...As I said before they were quite open in stating that “that the top end customers subsidise the bottom end”

In answer to the point you raise above, that does indeed include those on ‘social tariffs’ are having their cheaper prices funded by other customers; the bosses of Centrica and Scottish and Southern made that clear...

Excellent, you agree on that bit

Cardew wrote:

...I seriously cannot see how you can envisage any other way it could work.

I hope my reiteration of what I tried to express way back in post#17 now clarifies why it cannot possibly work the way you suggest.


[Edit: Perhaps BG actually does only have 10million customers, but they claim to have 16 million residential accounts;)
http://www.centrica.co.uk/index.asp?pageid=118
Or does your scheme somehow allow only one penalty premium per customer rather than one per account? ]

Cardew

Premier,

Firstly, regarding 10 million or 16 million, I specifically stated that "I will use round figures to make the arithmetic easier"

Use 16 million if you wish - does it alter the principle?

It seems you are really clutching at straws!

If there are 10million, 16 million or 12.534million customers and 2.4million of them do not pay any extra, then the £xxxx that BG raise will be spread amongst the remainder.

If the rent for 5 people sharing a flat goes up by £20 a month, and one of them cannot be charged any extra, then the remaining 4 will pay £5 each - it really ain't rocket science.

You can theorise as much you like about what the implications of that action will be; but the plain inescapable fact is that is exactly how it works.

Incidentally the logic that you use to conclude that BG will be £131 more expensive that other suppliers escapes me? Does it not occur to you that other companies will also be raising their prices.

The bit about BG 'taking the hit'(on the £1billion) is equally weird!

What I simply cannot understand is how you make absolute statements based on your theories of a sensible strategy.

e.g.
They got speculators to underwrite any risk 5 years ahead because that is the only way you could concieve it working - even you have grudgingly conceded you were wrong on that issue.

Now we have your theory that if BG(and others) derive their additional income from those not on fixed tariffs it will mean that they will lose all those customers. So despite the fact that it is plainly obvious that any revenue to be raised, can only be taken from those on non-fixed tariffs(there is no other possible explanation) you conclude that this cannot be the case.

I really am at a loss to understand your approach on this subject.

SwanJon

Woah, missed a bit.
Anyway

Premier wrote: »

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.

BG's 2010 has exit fees of around £75 for DF, and I'm sure some of the others did to. Think they didn't have much of a premium at the time though.

Premier wrote: »

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

Recent numbers that made these boards, but I can't remember precisely.
BG's residential profit last year was about £600 million from 16 million customers = £37.50 each
The year before the profit was about £100 million, so about £6.25

Obviously these are after marketing, cashback sites etc, but you can see how much of a difference tying in 2.4 million customers for up to 5 years would make.

Puts the £75 cashback into perspective.

Premier_2

Cardew wrote: »

...Incidentally the logic that you use to conclude that BG will be £131 more expensive that other suppliers escapes me? Does it not occur to you that other companies will also be raising their prices.

Pray, tell me, why's that, so they can increase profits?
As I said, not all suppliers are offering fixed rates.
Or is this another assumption you've come up with?
All suppliers are going to need to raise capital not already planned for? :rotfl:
If the investment is planned for - it would already be included in the fixed prices being charged to consumers (since as you agree, those prices cannot be increased for the prescribed period)
I really do think you have gone round the houses on this - now knock on the door and address the question I have asked you since post#8 about your post#7

Cardew wrote:

...What I simply cannot understand is how you make absolute statements based on your theories of a sensible strategy.

e.g.
They got speculators to underwrite any risk 5 years ahead because that is the only way you could concieve it working - even you have grudgingly conceded you were wrong on that issue...

What?!? You're digging up past history again. That was covered in full by my response given in post#45, yet you still fail to answer the point you raised way back in post#7 that I keep asking you to address

I've asked you the same question so many times now, I fear this thread is quickly turning into a resemblence of the infamous Paxman-Howard interview enquiring whether Howard threatened to overrule Derrek Lewis.

However, unlike Paxman, it is clear to me you are not going to answer my question.

So.....bye. Your unwillingness to address the question posed is a good enough answer for me:)

(Apologies to Mandark for having hi-jacked this thread)