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Gas prices and poverty

Robert Peston | 11:55 UK time, Sunday, 2 March 2008

I almost feel sorry for our gas and electricity companies.

They operate in a competitive market largely devised by this government.

The wholesale price of gas has been rising very sharply.

British gas logoAnd yet when they push up the prices they charge us, they are accused of profiteering.

Now these businesses are not as transparent as would be ideal.

Many are part of giant overseas businesses.

Some, like our own Centrica, do a good deal more than sell power to consumers.

So there is plainly the scope to fudge and obfuscate the true profitability of supplying energy to households.

But it would be little short of a miracle if any of them were making much of a return right now – and it is highly unlikely that any will do so over the next year or so.

The point is that over the past 12 months the wholesale price of gas has risen by more than 50%.

But the price charged to you and me has gone up recently by around 15%.

That means profit margins are being eroded very significantly.

Excess profits are not being generated.

That said, there was a period last year of two or three months when wholesale prices fell much faster than the retail tariffs imposed on us by power companies.

It led to a blissful period for the power giants of fattened earnings.

But the fat times didn’t last, because there is an effective consumer lobby which exposes when these energy businesses show the slightest inclination to profiteer.

What should be a concern to all of us is that forward wholesale prices for gas next winter are 22% higher than the current price.

So the recent increase in consumer tariffs may not be the last.

In that context, it is understandable that the Chief Secretary to the Treasury, Yvette Cooper, is having private meetings with each of the power giants, to discuss initiatives to provide affordable energy to those on low earnings, to combat what’s known as fuel poverty.

There has been much chat that she’s thinking of imposing a windfall tax on them, if they fail to come up with effective proposals.

Don’t hold your breath for that new tax, because there is no windfall being generated in their mainstream power businesses.

Which the Treasury now concedes.

And the chancellor, Alistair Darling, has also made clear he has no intention on following through on a proposal from Ofgem – the energy regulator – to levy some kind of one-off tax on a genuine windfall, the surplus value of emissions-trading allowances given to generators.

Instead the government strategy appears to be to shame the power giants into providing cheaper energy to those who can afford it least.

What it would like is an eye-catching announcement in the forthcoming Budget.

But there are risks for the Treasury.

First, if all the companies are coerced into behaving like good corporate citizens, there’s no incentive for any individual company to behave better than the others – which could in the long run have a deleterious impact on corporate behaviour.

Second, if energy companies view any fuel-poverty initiative as a de facto tax, they may well be minded to drag their feet on making much-need and very expensive investments in new, low-carbon generating plant.

Third, any reduction in prices for those on low incomes is almost certain to lead to increased energy prices for those on higher incomes. There would be a cross-subsidy from the energy haves to the fuel poor.

In other words, a programme to combat fuel poverty could be seen by most energy consumers as a stealth tax. Would they blame the energy companies for those increased tariffs? Or would they blame the Treasury?

Comments   Post your comment

  • 1.
  • At 12:55 PM on 02 Mar 2008,
  • glynn hughes wrote:

What is even worse is the foreign energy companies from protected domestic markets who are allowed to own our energy companies, yet we cannot acquire any of them. Definitely a major failing of the EU.

  • 2.
  • At 01:12 PM on 02 Mar 2008,
  • Barbara Mackenzie wrote:

Are you nuts? British Gas has just posted immense profits and you can bet your life the other companies are in a similar position. The fact that you can also sign up for a one- to four-year contract points to the gas companies not suffering financially.

The price should come down for everyone and forced, if necessary, by a watchdog with teeth.

It would also make a difference if the gas companies paid their executives less money and cut their bonuses and golden handshakes.

  • 3.
  • At 01:12 PM on 02 Mar 2008,
  • Eric Smith wrote:

Energy supplier British Gas has reported annual profits of £571m at its residential arm, up from £95m in 2006.
The news came as Centrica, British Gas' parent company, reported a 40% rise in operating profits to £1.95bn.

Trade union Unison said the profit was "obscene", coming so soon after British Gas raised the amount it charges for gas and electricity by 15%.

*****

BBC website 21st February 2008

*********************

So a 400% increase in profit was generated in three months ? Seems unlikely to me.

  • 4.
  • At 01:13 PM on 02 Mar 2008,
  • Tim McNeilly wrote:

My heart bleeds for them.

From BBC News last month "Energy supplier British Gas has reported annual profits of £571m at its residential arm, up from £95m in 2006.
The news came as Centrica, British Gas' parent company, reported a 40% rise in operating profits to £1.95bn."

  • 5.
  • At 01:14 PM on 02 Mar 2008,
  • f clarke wrote:

my heart bleeds truely ! these same companies force householders to accept payment meters in their houses if they are having trouble paying their bills - they then charge for useage and arrears combined PLUS an extra 10% for the pleasure of having a payment meter- surely that should be a discount ? - but no its a tariff on the poorest households
the only alternative is a payment card - they set the payments ridiculously high - last year they charged me 270 a month for dual fuel - of that 100 a month was arrears to be paid off over 10 months - unsurprisingly the arrears were paid off mostly within 4 months and the payments reduced but during that 4 months as a lone parent i had to find 270 a month - no choice other than the dreaded meter ... i told them at the time this was overcharging but they were obdurate
so my heart bleeds - we are paying more for fuel than virtually any other country - despite having our own reserves in the north sea - it is one thing to be taken for a fool by the power companies - quite another when it is by analysts such as yourselves. most of these companies are foreign owned now thanks to thatcher you can bet they are proficient at hiding their profits and bleeding us dry


  • 6.
  • At 01:17 PM on 02 Mar 2008,
  • Simon Stephenson wrote:

"The point is that over the past 12 months the wholesale price of gas has risen by more than 50 per cent.

But the price charged to you and me has gone up recently by around 15 per cent.

That means profit margins are being eroded very significantly.

Excess profits are not being generated."

I'd hope that someone in your position would know that the 2 conclusions you reach do not follow from the premises that you make.

1. How much of the overall cost of supplying gas is made up of the wholesale price? What does this mean in terms of the overall increase in the cost of supply?

2. How significant is very significant?

3. At what level may profits be considered to be excessive?

---------------------

"But the fat times didn’t last, because there is an effective consumer lobby which exposes when these energy businesses show the slightest inclination to profiteer.

Really?

So if this lobby is so successful in ensuring the benefits of perfect competition from a very imperfect market why isn't the model used in every other market? Is the all-powerful consumer lobby so effective at preventing profiteering that banks, supermarkets, oil companies, mobile phone networks, etc. are wasting their time trying to strangle competition? Does the sharp edge of consumer power ensure that charges for water and sewage disposal are maintained at a minimum level?

  • 7.
  • At 01:21 PM on 02 Mar 2008,
  • mr cheeze wrote:

so you feel that big bonuses for the company bosses/share holders are acceptable when pensioners are freezing in their homes because they cannot afford the high price of fuel?
and do you think its acceptable that when wholesale prices of gas/oil drop that gas companies keep the prices high for months after so rake in more profit instead of passing reductions on straight away?

  • 8.
  • At 01:23 PM on 02 Mar 2008,
  • Dave Coppard wrote:

Respectfully wish the following question be answered by Gordon Brown concerning The Basic State Pension in House on behalf of Pensioners

Gordon Brown would; either have to ask the Audience, do a 50/50 or Phone a friend, and still not have the answer.

Based on these Facts

The purchasing power of the state pension continues to be eroded. The general inflation rate used to calculate state pensions does not reflect the cost pressures faced by pensioners. For example, the cost of Fuel prices, Domestic oil, Domestic Gas and Electricity has increased substantially since 2004. As these four items make up a disproportionate amount of pensioners' outgoings, the true rate of inflation tallies more closely with the 9 per cent inflation figure quoted by the Daily Telegraph for pensioners for 2006. Pensioners therefore saw their income fall in real terms by about 5 per cent in 2006. Which the Government are not taking onboard, causing yet again the Pensioner to be unfairly treated by energy firms in terms of prices charged, and in many cases having their Gas/Electricity cut off, and starving to pay other house/hold Bills, as we all know, it’s a question of “ EAT or HEAT.”

My question is straight forward, pleased explain how one can manage on the following based on factual details.

Example: - Joint State Pension £128 47--- Weekly Cost of Petrol £18.10
Average Weekly Shopping £74.38... Weekly Oil Central Heating Costs £24.51
Weekly Electricity Costs and £10.10 = Total £127.09 Leaving Balance of £1.38 to pay the following: -

Council Tax/ Water Rates/ Household Insurance/ Car Insurance/ Household Insurance/ Plumbing/Water Insurance/ Boiler Maintenance/ Pet Insurance/ Road Fund License/ MoT & Car Service/ Dental Services/ Television License/Telephone Bill/ House Maintenance.

We are always boasting being the 4th Richest Country in the World, but in Europe Fail to admit our OAP’s are the Poorest?
“Have You Got the Answer”
?
Dave Coppard
Pensioner


Dave Coppard
Pensioner


  • 9.
  • At 01:30 PM on 02 Mar 2008,
  • Jamie Vicary wrote:

I find it incredibly difficult to read this one-sentence-per-paragraph writing style!!

  • 10.
  • At 01:36 PM on 02 Mar 2008,
  • John Small wrote:

>>
What it would like is an eye-catching announcement in the forthcoming budget.
>>
My the good Lord save us from "eye catching initiatives"

  • 11.
  • At 01:43 PM on 02 Mar 2008,
  • Richard Head wrote:

Is it possible for a Nation to have a morality as a whole and the same for corperations. The sad answer is only if it suits those empowered within. I would compare the morality of our polititions to those of the Hoody culture and the corperations to that of the local shop.
Our polititions have a gang culture attitude which is basically I want respect and I do not have to earn it, I will take what I can get whether its Morally right or not.
Our corperations will charge what they think they can get away with and profit is success and that matters more than morality, whilst the shop keeper will do the same in scale.
Yes there has always been the odd one in each of the groups to occaisionally break the mould but it has no lasting effect.
The media`s own flexible morality which is governed by the same princpals mantains that status Quo far more than anything and is much the sadder for it.

If the government is concerned about fuel poverty then it should increase benefits so that people can afford the fuel.
All this tinkering around with initiatives is, as you say, disguising who is going to have to pay for it: a stealth tax.

  • 13.
  • At 01:52 PM on 02 Mar 2008,
  • Angela Morgan wrote:

What you say may be so but what about the additional excess profits being made as a result of a collapsing US Dollar (which is the currency against the UK purchases oil and gas) against a strengthening £ Sterling when, in reality, we should see corresponding reductions in the price of petrol at the pumps and gas in our homes?

  • 14.
  • At 01:55 PM on 02 Mar 2008,
  • Sadiq Mohamed wrote:

A difficult situation, and one this government has created as a result of Gordon Browns attempts to force good behaviour patterns.

One of these good behaviours, which will now be under threat, is the requirement to invest in energy saving schemes for tenants in "affordable housing". As an unemployed 50something living in sheltered housing and receiving Housing Benefit, I have recently had my energy costs reduced by a scheme were all the council housing in my borough will receive new cavity wall and loft insulation, paid for in full by grants from energy companies.

If profits get squeezed, no doubt this scheme will be one of the first to go. My estate has been lucky in getting funding, but we were the pilot, and it may be that the rest of the borough will now be left in the cold.

  • 15.
  • At 01:57 PM on 02 Mar 2008,
  • Tom wrote:

Mr Peston seems to inhabit a kind of through the looking glass world. Energy companies don't make excessive profits! Does he even bother to read the newspapers?

  • 16.
  • At 02:00 PM on 02 Mar 2008,
  • Sadiq Mohamed wrote:

A difficult situation, and one this government has created as a result of Gordon Browns attempts to force good behaviour patterns.

One of these good behaviours, which will now be under threat, is the requirement to invest in energy saving schemes for tenants in "affordable housing". As an unemployed 50something living in sheltered housing and receiving Housing Benefit, I have recently had my energy costs reduced by a scheme were all the council housing in my borough will receive new cavity wall and loft insulation, paid for in full by grants from energy companies.

If profits get squeezed, no doubt this scheme will be one of the first to go. My estate has been lucky in getting funding, but we were the pilot, and it may be that the rest of the borough will now be left in the cold.

  • 17.
  • At 02:08 PM on 02 Mar 2008,
  • Martin Ingham wrote:

Agree that we cannot hold the energy companies fully accountable. We need government policies (UK, EU etc) to:

a) dramatically improve average thermal efficiency of existing housing stock (the SAP rating) to eliminate fuel poverty and reduce energy demand

b) encourage suppliers to provide consumers with energy produced by making the most efficient use of non-renewable resources pending sufficient generation from renewable sources. For example through Energy Service Companies.

  • 18.
  • At 02:08 PM on 02 Mar 2008,
  • dalrymple01 wrote:

The reality is that the energy market has become an oligopoly with barriers to new entry (most of which are buried in highly technical industry codes) very high indeed.

The result is a lack of price-based competition which is ostensibly bad for customers. At the same time, however, it is only the real energy giants that are going to be able to pursue the major energy projects e.g. new nuclear power stations.

So, if the Govt wants to keep new nuclear plant off its books, maybe this is the result...customers subsidising asset investment through higher energy prices, albeit with none of that acknowledged.

My view? Lower the barriers to competition and hence let the market decide the right levels rather than continue with the opaque pseudo-market we have now in which only 2 players (Centrica and Scottish & Southern) have been able to survive from privatisation against the lower cost of capital of the European players.

  • 19.
  • At 02:08 PM on 02 Mar 2008,
  • Rob wrote:

Robert, I'm very glad to see the "almost" in your first line. And I'm not sure where your confident assertion about excess profits comes from. I'm sure you've read Greg Palast's analysis of the sell-off of the UK's utilities, which details just how little - as in the complete reverse - of market efficiencies have found their way to the poor old consumer. If some of these companies are getting a harder time it's long overdue. Regards.

  • 20.
  • At 02:16 PM on 02 Mar 2008,
  • Em wrote:

An interesting yet depressing post.

However, unlike these cost hikes, the move towards authoring entire blog posts in free verse is very welcome.

It's about time.

Journalism has for too long been fettered by the paragraph structure.

Next, blank verse, and who knows?

Maybe we may dare to dream of the widespread adoption of iambic pentameter.

Fingers crossed!

  • 21.
  • At 02:17 PM on 02 Mar 2008,
  • Mark Chisholm wrote:

I would feel more sympathy with the power companies if it was a straight wholesale price issue. However most of the power companies also own oil or gas fields and production facilities therefore gaining by the high fuel price. Which of course they can right off as a cost against there profits because many operate as separate buisnesses within the main umbrella. Smoke and mirrors.

  • 22.
  • At 02:17 PM on 02 Mar 2008,
  • David Witts wrote:

> The point is that over the past 12 months the wholesale price of gas has risen by more than 50 per cent.
> But the price charged to you and me has gone up recently by around 15 per cent.
> That means profit margins are being eroded very significantly.

If the cost of the gas was only 10% of the total running costs for the company and that was a 15% increase to customers across the board, the gross profit would actually *increase* by 10%, not be eroded.

What is the actual cost of the gas to the company compared with their total running costs? Without that information, a statement such as "that means profit margins are being eroded very significantly" is impossible to verify and certainly does not follow automatically from that simplified 50% vs. 15% comparison.

(I do suspect the actual cost of the gas to the company is more than 10% of their total running costs, but that's for illustrative purposes only).

Regards,
David.

  • 23.
  • At 02:20 PM on 02 Mar 2008,
  • Simon wrote:

It is of course noticeable that last years decrease in consumer bills did not match the previous increase. Robert, you may feel sorry for the energy companies, but as these companies are still making large profits - your sorrow is more towards the shareholders who haven't been able to fleece the consumer as much as they have become accustomed.

In addition to your remarks about tax - it would help the consumer if the government removed the VAT it introduced to energy bills some years back.
Why we should be taxed to keep ourselves warm, which in the cases of the elderly and infirm can be a matter of life & death beggars belief - except of cause it's an additional tax that helps to distort the income tax rate.

  • 24.
  • At 02:24 PM on 02 Mar 2008,
  • Zeb wrote:

What planet are you living on, it cannot be earth.
Lets look at the facts, the hedge funds are at the moment betting that OPEC are going to drop oil perduction.
If Opec do cut oil perduction then that means gas and oil will go up in coast.
Why will OPEC cut perduction in oil, the fact is that the world has so much oil in it tanks that it cannot take any more Oil from the ground.
This is thanks to the big six oil comps. Just operating at running their out puts at 60 to 70% instead of meating the world demands.
Less oil pump out of the
ground less gas which = higer fuel and gas prices.
Please take your sad story some where else, I am hering the Drudge report needs a new repoter

  • 25.
  • At 02:24 PM on 02 Mar 2008,
  • John wrote:

Well, well. So although the banks haven't pushed up any prices for domestic customers and generally provide a level of free banking not available in many other countries across the world, you prefer to persecute them as opposed to the power companies? One might be lead to believe that you have a personal issue with the financial services industry?

I will admit that it is by no means perfect - we await the outcome of the court case on overdraft charges, and the recent Egg debacle has somewhat tarnished the credit card industry, but I don't see any banks trying to raise prices as overtly as British Gas or nPower. I do not understand why you wish to protect one sector renown for high prices and a lack of competition, and attack another

  • 26.
  • At 02:25 PM on 02 Mar 2008,
  • common sense wrote:

Yes i can see the rest of the country agreeing with you thier Robert now get your head out of the cloulds these energy companys are racking it in at our exspence. Please do not use words most of us carnt understand like "obfuscate" if you mean lie say lie,we know what fudge means thanks to M.Thatcher.
No dont try and justify profit loss to us,when gas and electricity are cheaper across most of europe.In shells case they set the whole sale price in the first place then pass it on to us.
even if thier was a wind fall tax hows that going to help any body the the tax will disapear down a windy hole never to be seen again.
any way nuff said.

The business case for renewable power is getting stronger. The costs of running tidal barriers etc stays fixed and cannot be varied up and down by foreign govt.s and "bumps" in supply.

Forget wind - waste of time, but the energy which can be generated by tides and oceans is staggeringly high. The whole UK could be powered by tidal power alone.

When will the idiots in govt remove the obstacles that stand in the way of energy companies developing this technology? Portugal is doing it and it looks like it will be the first country to be independent of oil and gas.

Good for them!

  • 28.
  • At 02:31 PM on 02 Mar 2008,
  • Ben wrote:

Would prices have to increase if we were able to generate, control and supply our own power needs? By selling off our assets to private companies interested only in profit our Government, as our representatives, can only meet them for a little chat and ask them nicely to help us all out.

Well that should take care of that then eh?

Thanks Thatcher.

*Does a little dance*

*Awaits her death with party poppers and champagne*


  • 29.
  • At 02:37 PM on 02 Mar 2008,
  • David MacDonald wrote:

My heart bleeds for the poor energy companies, at least it will if they ever fail to make a profit.

When a Conservative party leader calls for the OFT to investigate gas prices, as David Cameron has done, you know there is something far wrong with the way energy companies are running their businesses.

Profiteering? Would the fact that they choose to make these price hikes at a time (winter) when the consumer most needs their products bring about the notion that they may be profiteering?

Or is it more likely that the consumer will think that the energy companies have no choice in when they force price increases on them?

I know what I think.

UNISON and the National Right to Fuel Campaign have demanded an official inquiry into the almost £2.5bn extra profits energy companies have awarded themselves.

When you consider that over £1bn of these profits have been shared between two companies, namely British Gas (£571m) and npower (£545m an increase of 40%, which RWE the German owner of npower claims is finally an acceptable profit) is it any wonder that the millions of consumers who use these companies for their gas and electricity needs, and those that are trying to garner their votes, are up in arms.

I am not against companies making fair profits, but like many others, I feel that when companies are breaking records in their profit making, the man who can make them stop, should.

David MacDonald

  • 30.
  • At 02:38 PM on 02 Mar 2008,
  • Graham Butler wrote:

I would not argue with Mr Peston about the mathematics of the current gas costs but he is concentrating on the 'trees' rather than the 'wood'.
The fact is that the UK is regarded by overseas corporations as the 'golden isles'.European car manufacturers were the first to find that they could subsidise sales in difficult markets with the generous profits created in the UK, more recently
European energy providers have noted the scope for good margins in the UK and now dominate the energy providers.I am sure that they achieve a good return on their investment.
I understand that energy prices in the EU are lower than those in the UK.To what does he attribute this situation ?

  • 31.
  • At 02:39 PM on 02 Mar 2008,
  • Denise wrote:

Who would I blame if energy prices went up to keep prices low for those ian energy"poverty trap"? Why the government of course.

Our present government is so broke they are forever casting around for way to squeeze ever more out of us.

  • 32.
  • At 02:39 PM on 02 Mar 2008,
  • Simon wrote:

It is of course noticeable that last years decrease in consumer bills did not match the previous increase. Robert, you may feel sorry for the energy companies, but as these companies are still making large profits - your sorrow appears to be directed towards the shareholders who haven't been able to fleece the consumer as much as they have become accustomed.

In addition to your remarks about tax - it would help the consumer if the government removed the VAT it introduced to energy bills some years back.
Why we should be taxed to keep ourselves warm, which in the case of the vunerable elderly and infirm can be a matter of life & death, beggars belief - except of cause it's an additional tax that helps to distort the income tax rate of the less vunerable.

  • 33.
  • At 02:48 PM on 02 Mar 2008,
  • Dr. Joydeep Bhattacharya wrote:

I am quite surprised at the tone of this essay; it might give a false (or a true one which I don't think the case though!) impression about an illicit connection betwen powerful energy companies and a respected media establishment.

As a common man I do think that we are unfairly charged by the British energy company as compared to other European countries. For example, I had lived in Vienna, Austria for quite some time and on no occasion the energy bill was even comparable to what I usually pay in the United Kingdom: actually it was a fraction of the current amount! I do not have the balance sheet of the two energy companies to tell which makes more profit; however, as a customer I do feel exploited by the British energy supplier. The ever increasing energy costs coupled with dwindling customer services point that there is something drastically wrong - the sooner it gets rectified the better for everyone, including the senior citizens who often appear in the headlines in the media facing financial crisis due to mounting energy bills!

  • 34.
  • At 02:50 PM on 02 Mar 2008,
  • Lawrie Elwell wrote:

Cost up 50%, but prices to consumers up 15%, so Robert thinks margins are being eroded ? Surely he knows that if material cost is less than half of the price of the finished product (ie after pipeline costs, profits, overheads, etc) then actually break even is to increase 25%. But is wholesale gas price 50% of cost or less ? Why doesn't he tell us, to make it accurate ? Even then I think the key point overlooked, is that of when the wholesale price of gas goes down, and then when British Gas moves their price. Price reduction lag will easily make up that 10% gap I think, and wholesale prices regularly and quickly move, down as well as up. I was also amazed Robert highlighted Northern Rocks deal with the Bank of England, which you could say helped cause the banks problems by starting a run, yet here where a spotlight is needed, we get half a story, and he plays it down.

  • 35.
  • At 02:59 PM on 02 Mar 2008,
  • Pete wrote:

No need to worry, Robert. These companies are far from hard up and will be delivering healthy profits next year and for many years to come.

You might be right to shed a tear if the wholesale price was the whole of the picture but it's not. A lot of the costs in the consumer markets like staff / billing / meter reading etc haven't gone up by 50% and in many cases have reduced as the number of competitors has shrunk and created greater efficiencies and there's never any urgency to move prices when wholesale prices decrease.

There's also the issue of transfer pricing along the supply chain which can move profit through the chain so as not to give too much profit in the retail sector. This is similar to the oil companies who always claim to lose money on petrol retailing but somehow always manage to make a tidy profit each year through exploration / refining which is less politically sensitive.

By looking just at the retail prices for the fuel poor, the Government is looking at the wrong thing. It needs to be looking at the price the UK pays in relation to the rest of the EU and the true competitiveness of the UK market. This would benefit the whole of the UK rather than just the fuel poor.


  • 36.
  • At 02:59 PM on 02 Mar 2008,
  • Eddie Leverington wrote:

Gas, Water and Electricity should never have been sold out of public ownership. The government could now provide cheaper fuel costs to those more vulnerable, ie people living on basic state pension. I, fortunately, have a good job, but I'm not looking forward to retiring in 5 yrs. Most of my pension will be used to pay off my endowment mortgage and there will be little left after the recent pension falls to live as comfortably as I do.
If I won't be able to afford the rising energy bills, then God help all those worse off than me. The private industries have to continuously show rising profits to attract investors - all at the expense of their customers.

  • 37.
  • At 03:00 PM on 02 Mar 2008,
  • p kelly wrote:

Dreadful propaganda from this journalist.

Very first sentence: "I almost feel sorry for our gas and electricity companiies" 'OUR'? What the!

They're not 'our' companies. Are you trying to win sympathy by saying they're of 'us'?

Since when is E.ON out of Dusseldorf and RWE out of Essen, Germany, part of 'our'. Or GdF, Gaz de France or Suez of France? Do you take us all for fools? The electricity, gas and water companies are nearly all foreign owned.

Furthermore, the 'big six' price within a few per cent of each other. There is de facto market price-fixing, a cartel - illegal. The regulator Of?(foff?) won't touch them. The government's totally in the pocket of big business, again won't touch them. As usual UK for one and all, is Treasure Island. Fill your boots jim lad.

Peston's just there to hide the bleedin' obvious - you're being shafted by the big utility companies, nearly all foreign owned. And you're own government won't do sod all about it to protect the interests of its own citizens.

Peston, do a proper facts-based financial journalist's job and just list out what other comparable countries pay per kilowatt hour of electricity, cubic metre of gas and litre of water supplied. That'll cut through the flannel.

  • 38.
  • At 03:08 PM on 02 Mar 2008,
  • Gary wrote:

Whats the problem? These companies have something we want, i.e electricity and gas, and as we want it we have to pay for it. If wholesale prices go up then obviously we will have to pay for them. If you don't like that, then use less! It may get cold in the winter, but you can put a jumper on,or two, or even three. Turning the telly off and having a conversation can save you loads of money. Not using a dishwasher, not using a washing machine or tumble dryer can save you loads of money. But if you aren't prepared to do this then you'll have to pay the price. These companies are there for profit only, just like any other company, so why would you expect them to act any differently?

  • 39.
  • At 03:14 PM on 02 Mar 2008,
  • im annoyed wrote:

why are we suprised that their profiteering? their private companies who's only concern is delivering maximum profit to their share holders. Im going to use the dirty word...nationalisation! Combine that with a real push for renewable sources and we're not going to be at the whim of global oil prices or profiteering companies! and we actually get a fair deal! Mentioning the word nationalisation may well incur the wrath of the right but if managed efficiently, without an eye on profit making the tax increase required to maintain the energy supply would be less than our energy bills are now! and if we use renewable energy there would be no ridiculous fluctations in prices because its a consistent source! In the current situation the only people who lose out are the public!

  • 40.
  • At 03:16 PM on 02 Mar 2008,
  • John wrote:

Mr Peston,

What a load of bull you sprout. Do you think us to be all imbeciles.

Time we all stood firm in this country and stood up for our rights and fair treatment.

The French folk would not stand for it so why do we?

  • 41.
  • At 03:40 PM on 02 Mar 2008,
  • andy wrote:

The profits the companies have made are not made up from income from regular citizens and bill payers.

What you have to understand is that large organisations such as the one above have many subsiduary companys in refinement and such that are making up the bulk of the profits. these profits are being invested back into R&d of renewable energy sources and continuous improvenment programs.

Gas and electricity sales are not making money for the big companies.

"The business of business is business" - it isnt making sure people can afford to buy gas and electricity. Energy firms must stay competitive and by not increasing their prices when wholesale prices are increasing the results would be catastrophic

  • 42.
  • At 03:40 PM on 02 Mar 2008,
  • Graham wrote:

Please could you write in paragraphs that comprise more than one sentence? As interesting as your blog post is, it is utterly tiresome to read.

  • 43.
  • At 03:47 PM on 02 Mar 2008,
  • Caroline wrote:

As the Administrator for the National Right to Fuel Campaign, I am disappointed in this article which ignores the additional costs for low income consumers, such as higher rates for prepayment meters, effectively a reverse cross subsidy from poor to rich. As mentioned by David MacDonald above, the Campaign's recent research, supported by Unison, found that some £2.5 billion of the increased consumer fuel bills from 2003-06 can not be accounted for by higher wholesale, transport or generation costs. The point about VAT raises the issue that, with increased fuel costs, the Government is receiving considerable income while, at the same time, it has completely ignored the issue of fuel poverty in its current Energy Bill and has cut the budget for Warm Front, its main anti-fuel poverty programme. At long last, the BERR Select Committee is enquiring into anti-competitive behaviour on the part of the energy suppliers given the very small variation in fuel costs between the major suppliers. Do not have any sympathy for the fuel supply companies although the Government must take responsibility for an effective fuel supply strategy which ensures that no household suffers from fuel poverty which results in serious health, economic and social effects.

Robert, Is the evidence that the price rises were needed as clear cut as you say? Yes wholesale gas prices have risen over the last 12 months but wholesale prices are only a fraction of the retail price. For gas its about 2/3 and for electricity about a 1/3. You might then ask why gas and electricity prices rose by similar amounts? Wholesale gas prices also fell about 50% last year. If we aren't being ripped off why when prices were falling did the suppliers postdate their price cuts by 3 months but when they were rising the increase occurred the next day? Why if margins are squeezed so much have e.on and EDF Energy not raised the price of their online deals and why has npower cut their online prices (compare Signonline 10 with Signonline 8)? All 3 suppliers have raised the prices paid by the poorest in society. Finally why have Scottish and Southern Energy not yet put up their prices at all?
You argue that people on higher incomes would resent cross subsiding the poor. Trouble is in the energy market the poor are already cross subsiding the rich. The Centre for Sustainable Energy recently estimated that the lowest 20% on the income scale pay about 30% more for their energy than those in the top 20% (see p6 of http://www.eeph.org.uk/uploads/documents/partnership/%285%29Simon%20Roberts%20presentation%20fuel%20poverty%20seminar%20201107.pdf%29. Its easy to see why when in parts of the country pre payment meter users pay 60% more for their energy than do people who can manage their account online.

  • 45.
  • At 03:51 PM on 02 Mar 2008,
  • Keith wrote:

Why can't Gordon just privatise the energy companies as he's done with Northern Rock? It would be much cheaper and the taxpayer might even a return on the investment, unlike with NR.

  • 46.
  • At 04:11 PM on 02 Mar 2008,
  • Eric Smith wrote:

Dreadful propaganda from this journalist.

***********

It is the BBC after all, the place George Orwell got his ideas for the Ministry of Truth. He was the Winston Smith of the BBC.

The other (BBC) economics blogger, Evan Davis treated us to a pyrotechnic dispaly of sophistry in arguing that immigrants are of benefit to everyone in Britain.

  • 47.
  • At 04:14 PM on 02 Mar 2008,
  • Arun Sethi wrote:

Sorry but a 500% rise in profit is going to need a lot more defending than that.

  • 48.
  • At 04:17 PM on 02 Mar 2008,
  • Dennis wrote:

The prices charged and profits made by the privatised utilities,(gas,electricity,water), should not all be paid out in dividends for city institutions to profit from.A formulae for proper investment to the infrastructure should be created to create more and more efficency in the system-so over time lowering costs and prices.Similarly in telecoms where too little is being spent in the UK on modernising the 19th century copper wire network for the new high speed data world of the future more incentives from government are needed to encourage private companies-including BT,to invest.The City game of squeezing all the profits out to fund their bonuses each year leave the country with ageing infrastructure not up to the demands of a modern more compeditive age.

  • 49.
  • At 04:33 PM on 02 Mar 2008,
  • Geoff, North Wales. wrote:

what are we or you Mr.Peston missing in the reported profit figures? The energy companies operating in the UK are like the oil monopolies we hear from time to time i.e. there is no money at the retail end in UK fuel sales. There is no money because they are raking it off elsewhere and we dumb Brits are left to pick up the bill with virtually no interference by the so called watchdogs.

  • 50.
  • At 04:57 PM on 02 Mar 2008,
  • V Pemberton wrote:

This will be another case of taking from the hard working lower paid good people of this country and giving to those who do bugger all. When will this country wake up to Brown's tax and spend and get rid of them.

  • 51.
  • At 04:58 PM on 02 Mar 2008,
  • James Owens wrote:

obviously a centrica employee, c'mon do you really expect people to believe that these companies are not making a profit, to be honest companies are entitled to make a profit but when its an incredible amount with nothing passed onto the customer thats when people take issue with it.

  • 52.
  • At 04:59 PM on 02 Mar 2008,
  • Robin Arnold wrote:

Power companies aren't operating in a competitive market as they make it impossible for most consumers to compare prices. It's like trying to shop around for petrol where no petrol stations tell you what price they charge per litre, but instead they confuse with with price plans and budget schemes and discounts which you lose if you buy petrol from elsewhere. Not to mention the power companies rely on high pressure door to door selling.

Until the regulator does something about this problem, I really don't think you can debate whether the power companies are being treated fairly from an economics point of view. I really think you should just stand back and let the consumer lobby put the populist boot into them.

  • 53.
  • At 05:29 PM on 02 Mar 2008,
  • cjk wrote:

Unless you know the full ins and outs of the industry and how stupidly complicated OFGEM has made it, you would never appreciate how much of your bill is wasted legislation.

EG.
Gas buyer = 8% profit
Gas Transporter = 8% profit
Pipeline owner = 8% profit
Meter owner = 8% profit
Meter reading company = 8% profit
OFGEM overheads = 5% profit. Once all this is added to the bill then
British GAS add there profit of 4.4% per customer.

£571m profit for British Gas split between its 13m customers. That is £44 per customer. Average Dual Fuel bill is £1000. That means they made roughly about 4.4% per customer. They should switch everything off and make all the workers unemployed and then stick the money in the bank. They will earn far more.

  • 54.
  • At 06:18 PM on 02 Mar 2008,
  • Curlew wrote:

We have to ask if gas futures are priced in US Dollars or another currency. If it is the former then the wholesale price will not cost the gas companies any more as the US Dollar is at an all time low.

If gas and oil prices increases are due to the dollar falling, we are being conned at the retail end.

  • 55.
  • At 06:55 PM on 02 Mar 2008,
  • Tim Probert wrote:

I like to think of the UK's privatised electricity industry in terms of bakers and bakeries (bear with me).

In the UK we have a number of bakers (EDF, E.ON, ScottishPower, Npower etc), but only one bakery (the National Grid).

In order to bake and sell their bread, the bakers have to pay a fee to the bakery.

So that the bakers can make a profit, this fee is passed on to Mr and Mrs John Bull by rising the price of a loaf of bread.

In France, they only have one baker, but he owns the bakery. He doesn't have to pay a fee to anybody, so Mr and Mrs Sacre-Bleu pay less for their loaf of bread.

We hear a lot about choice these days. But while it might be desirable to choose a different kind of bread, electricity = electricity = electricity, no matter from who you buy it.

  • 56.
  • At 06:56 PM on 02 Mar 2008,
  • Jon Fuller wrote:

There is a huge amount of comment about 'large', 'excessive', profits of utility / oil & gas / energy companies, which in the same breath gets people talking about windfall taxes.

If you are investing billions of pounds, then your investors are expecting you to make hundreds of millions of pounds of profits; otherwise they (the shareholders) may as well put their money in the bank, as opposed to investing in said company.

Final point the treasury does not want to admit to is squeezing oil / gas / utility entities any more would potentially drive them to do what Unilever, Proctor and Gamble, Tesco, many FTSE 100 companies have done which is to 'offshore' the corporate entities so that they pay less / no tax. If the average resident knew where the corporate tax burden fell and did not fall, there would be many FTSE 100 CEO's looking a bit sheepish. If the treasury was more focused on some of this, they may find a few extra pennies to make hardship payments to hard-up pensioners.

  • 57.
  • At 07:10 PM on 02 Mar 2008,
  • peter ellis wrote:

THIS GOVERNMENT HAS HAD ITS HAND IN YOUR POCKET FOR MANY YEARS,
THIS PRIME MINISTER HAS WORKED HAND IN HAND WITH BLAIR TO DRAIN RESOURCES WHEREVER THEY CAN BE FOUND,
IT WOULD NOT SUPRISE ME IF THE GOVERNMENT ARE WORKING BEHIND THE SCENES TO INCREASE GAS PRICES IN COLUSION WITH GAS COMPANIES FOR ANOTHER TAX TO PAY FOR FUTURE CHANGES IN THE ENVIROMENT( A TERM I USE LOOSELY AS I HAVE YET TO SEE A RESULT FROM THE TAXATION TAKEN FROM MY POCKET)
GIVEN THE CHANCE GET RID OF THIS CHANCELLOR/PRIME MINISTER AND REPLACE WITH ANY ONE WHO GIVES A CHANCE OF OUR MONEY BEING SPENT WITH CONSIDERATION AND REPRESENTATION. THIS GOVERMENT DOES NOT REPRESENT MY VOTE IN ANY FORM.

  • 58.
  • At 07:39 PM on 02 Mar 2008,
  • Graham wrote:

I won't even tell you how much British Gas spent on their SAP billing system which is so awful that Scottish Power got rid of it. The reason they didn't follow suit is that they spent what they did...lol.

  • 59.
  • At 07:41 PM on 02 Mar 2008,
  • Supawooly wrote:

Do any of the know-it-alls on here actually know what they're talking about?

British Gas' residential arm made £571 million profit from roughly 15 million customers. That equates to approximately £38 profit per customer per year, or £3.30-odd a month. It's hardly Dick Turpin territory is it?

How much profit does your local pub make per year from each customer? Or Sky TV? Or Vodafone? Or HMV? I'd give good odds it's more than 38 quid and yet no-one seems to be shouting the odds about those companies.

There's some bandwagon jumpers here and no mistake.

  • 60.
  • At 07:47 PM on 02 Mar 2008,
  • mick wrote:

Profits recorded by energy companies are obscene, natural resource providers including energy water ect should be owned by the public rather than the Northern Rock,the British public seem to pay through the nose for basic services,unfortunatly our governments do not possess the skills to run a raffle, let alone such large companies.Could the government pay a Nondom to produce the next budjet.

  • 61.
  • At 08:27 PM on 02 Mar 2008,
  • Amused wrote:

Reading the comments to your article is both amusing and depressing all in one.

I think it is fair to say that there is a correlation between the paucity of the quality of the grammar in relationship to the level of vitriol that is being spouted.

There seems to be a lot of bitterness here.

Bitterness that johnny foreigner owns British utilities. Well I'm sorry but we all had the chance to buy our shares and what a surprise, most of the private investors sold when the share price went up. You've no-one to blame but yourselves.

Bitterness that these companies make big profits. It seems a sad British disease that success is mocked. If you look at the corporate world, profits of £500m really aren't that big. And it might be worth remembering that all the profit that they make is taxed at 30% (28% from 08 onwards) and goes to the Exchequer. Oh and dividends are taxed too, so actually, we do benefit from profits.

City bonuses get thrown in yet again, even though these are barely relevant, but the above comment is equally applicable.

And there is a bigger picture here that few people have even thought to notice. Gas is a finite resource as is oil. How about we maybe examine our lifestyles and have the heating on lower, turn off the lights when we don't need them and insulate our houses properly. It saves you money in the long term, but of course it requires a bit of effort and thought. Having read some of the posts on here, it probably is byond most of you.

  • 62.
  • At 08:37 PM on 02 Mar 2008,
  • Andrew H wrote:

A quick look at Centrica's 2006 annual report suggests that actually Robert is right. You've all assumed that British Gas (i.e. residential gas supplies) are Centrica's only business. In fact its the main business, (43% of turnover) but it contributes just 7% of profit, at a margin of 1%. The main businesses for profit are Centrica Energy (energy production/procurement (i.e. wholesale business), 48% of profit, just 8% of turnover, 55% margin) and Centrica storage (storing fuels at sites like Buncefield, 16% of profits, 2% of turnover, 77% margin). So actually, Centrica really doesn't make anything much off its consumer sale;, its all from its sales to other businesses, which is where the massive price rises have been.

2007 financials aren't out yet, but if anything I would have expected this trend to have strengthened.

  • 63.
  • At 08:38 PM on 02 Mar 2008,
  • graeme wrote:

What about the cost to the consumer for selling the utilities twice around-once by Thatcher, when they were privatised, and secondly when the foreign companies took them over-those foreign companies borrowed obscene amounts of money in Europe to take over the UK suppliers.They now have to hedge against a collapsing pound and a credit squeeze simultaneously-the result clearly will be higher prices for those of us who have to pay for this madness.
Where are the UK owned utilities in europe to counter the cash drain on the economy?

  • 64.
  • At 09:13 PM on 02 Mar 2008,
  • J Plant wrote:


A very interesting view. However, I do not feel so sorry for the energy companies.

I think they are under tremendous pressure from their shareholders to continually incease returns. From the annual reports I have seen so far, they have achieved their goal. They seem to use the 'Wholesale Price' yarn as an excuse for the profits they achieve.

As consumers, we need to be more picky and less loyal to these companies. We need to be prepared to change supplier frequently when companies toy with their tarrifs.

As a seperate note, I feel sorry for the poorest families in the UK. Those on a pay as you go meter have to pay considerably more for their energy, even though they are paying for it up front. Doesn't seem right, does it?

The cost of living is going through the roof: petrol, energy, wheat etc. The list goes on. If we do not stand up and be counted now (by choosing carefully who we give our hard earned cash to), we will continue to be abused by fat cat profiteers!

Your statement

"The point is that over the past 12 months the wholesale price of gas has risen by more than 50 per cent.

But the price charged to you and me has gone up recently by around 15 per cent.

That means profit margins are being eroded very significantly.

Excess profits are not being generated."

Is not quite valid as energy companies will lock in to long term contracts at different prices at different times. Certainly the spot price and forward prices are going up but this does not affect deals struck years ago at signficantly lower prices. Their overall energy book cost does not increase in a linear manner with spot price.

Also as vertically integrated energy companies they have the ability to hide costs or profits at any point in the supply chain making any analysis related purely to short term fuel price problematical.

  • 66.
  • At 09:29 PM on 02 Mar 2008,
  • steve wrote:

"...a competitive market largely devised by this Government..."

Err, no.
I think the government that privatised them was largely responsible for creating the competitive market in which they operate.

Tell Sid that the BBC's Business editor doesn't remember Thatcher...

  • 67.
  • At 09:42 PM on 02 Mar 2008,
  • Ca Ira wrote:

Robert,

During the past 7 years I have written to 3 CEOs at British Gas, not surprisingly I have never received any reply.

My subject was that British Gas should introduce a loyalty incentive scheme for customers using price discounts on a time related scale.

Being retired now, 40 years a British Gas customer and never faulted on a payment date, I would have thought that my record was worth at least some reward.

Sadly no response, tells me a lot about the nature of British Gas management and their false concept of customers and real competition.

Robert, can you please have one of your BBC staff publish a table of comparative domestic gas prices within the EU. We are being 'conned' by the energy industries in the UK and the regulatory organisations are short of legal firepower and political will to protect the consumers. The UK market is very attractive to foreign utility companies for those main reasons.

  • 68.
  • At 09:54 PM on 02 Mar 2008,
  • spinusthetruth wrote:

Having worked in the Industry for over 30 years,it angers me that the politicians of both major parties have brought us to this parlous state.

Don't blame the privatised companies for trying to make a profit for their shareholders. Blame first, the Tories for allowing strategic industries to be sold off cheaply and then fall into foreign hands. Secondly, blame the Socialists for failing for more than a decade to have a coherent energy policy.

The much vaunted 'dash for gas' has left us vulnerable to unstable overseas markets and the 'anti-nuclear' roots in the Labour government have seriously delayed the obvious need to build replacement plants.

As an insider don't just worry about fuel poverty - worry about power cuts as well !!!!!!

  • 69.
  • At 10:01 PM on 02 Mar 2008,
  • John wrote:

It appears that many people here don't understand profit margins. If the profit margin increases from 1% to 6% then 'profits soar by 500%!).

So how much profit does BG Make on that 'obsene' 571 million - assume 10 million customers the profit is £57 per house per year i.e. about £1.00 per week.

  • 70.
  • At 10:04 PM on 02 Mar 2008,
  • martin mcnally wrote:

good points..but,do not the majority of pension funds (personal and occupational) hold utility shares?Another stealth tax if introduced (twice on pensions!!). In todays world, surely the answer is penalise HEAVY users?Currently the greater the consumption,the lower the cost to the higher level consumers.Surely it should be the other way around...average cost lower the LESS you use?Re. profits of co's involved.. how much of this this is actually "energy"related?How much "other interests"? Just like the banks.."lies,damn lies and statistics" Oops..Nu Labur!!!

  • 71.
  • At 10:06 PM on 02 Mar 2008,
  • neil mantrippe wrote:

Consider this, British Gas has a customer base of around about 20million. Divide the profits posted recently of £570 million, and this equates to making around £28 profit from each customer a year, this doesnt sound like an obscene amount to me. Everyone seems to forget that we are now paying over £1 litre for our petrol/diesel, but I dont hear anyone moaning about BP or shells £9-10 billion profit!!

  • 72.
  • At 10:07 PM on 02 Mar 2008,
  • G Fitzgerald wrote:

"I almost feel sorry for our gas and electricity companies.

They operate in a competitive market largely devised by this Government"


`This' Government???? as a fair few others have pointed out; all this was caused by Ms Thatcher and her Government (the Conservatives as we all know), blissfully selling off public utilities to pay the way for tax cuts...and i`m sure we can all remember that we were told at the time.."it will benefit the consumer in the long run"..... yeah..of course.

...just think of all the profits that could have been pouring back into the public domain... BT, British Rail, Gas, Water...the list goes on..instead we are all finally getting larger and larger bills, and increasingly ridiculas journalism from the BBC in the guise of Mr Preston's article!

  • 73.
  • At 10:11 PM on 02 Mar 2008,
  • John the Third wrote:

Bob, that's an awful article.

Your readers are aware, and surely you must be too, that the price the consumer pays for electricity and gas is dependent on more than the raw price of oil, coal, gas, etc. So why make the claim you make, all it does is make you (and/or the BBC) a laughing stock?

The competition may have improved a bit since the days of pseudo-regulator Professor Littlechild but the current profit margins across the industry need explaining rather than excusing.

You might also want to consider a future article on why our energy suppliers are now in foreign hands. What is it about British capitalists that made them not want this kind of profit ? They must have known that regulatory bodies in the UK are known for their absence of teeth. Presumably the folks in charge wanted to cash in their shares for a quick (and massive) profit?

Tell Sid, he used to own it.

  • 74.
  • At 10:26 PM on 02 Mar 2008,
  • Carol Baker wrote:

With regard to our elderly, who are struggling to pay for electricity, gas and heating oil, the most logical course would be to give them an adequate pension so that they can afford to keep warm and well. That way nobody will feel they are paying a stealth tax on their behalf. Just when is this government going to look after it's senior citizens?

  • 75.
  • At 10:27 PM on 02 Mar 2008,
  • Jed wrote:

Given the generally accepted tension of climate change and rising demand for limited fossil fuels, energy prices will continue to go up. The answer to energy poverty is not lower prices, which will simply encourage us all to waste more finite resources and add to the problem of global warming. Rather it is to ensure that people have adequate incomes to afford the necessities. This means both looking at the benefit system, especially for pensioners and childless people, and reducing the burden of taxation on the lowest earners and low-income pensioners who pay disproportionately high marginal tax rates.

  • 76.
  • At 10:31 PM on 02 Mar 2008,
  • Carol Baker wrote:

With regard to our elderly, who are struggling to pay for electricity, gas and heating oil, the most logical course would be to give them an adequate pension so that they can afford to keep warm and well. That way nobody will feel they are paying a stealth tax on their behalf. Just when is this government going to look after it's senior citizens?

In the short run there is misery ahead for all energy users - the price of oil is at the root of it. In the long run the strategic struggle for lower gas and electricity prices is one of introducing competitive markets across all of Europe - right now it's poor old Blighty playing by the rules and everyone else cheating, often at our expense.

This war is being waged by the European Commission against E.ON, EDF et al. Interestingly, a useful victory was won by the Competition Directorate last week. It's not all bad news.

  • 78.
  • At 11:03 PM on 02 Mar 2008,
  • The Doctor wrote:

So what is the percentage uplift put on wholesale prices by the distributors, and has that diminished appropriately? If distribution costs are stable and wholesale prices are/were rising, the price we pay should be getting closer to the wholesale price unless the distributors are profiteering Can Robert Peston show us a graph, please.

  • 79.
  • At 11:51 PM on 02 Mar 2008,
  • Michael wrote:

It is indeed pointless being an economist in this country or listing rational economic arguments the politics of envy also trump common sense. RP has given a reasoned analysis, almost every poster has chosen to ignore it any state their own view point.

Well here is a different one - the increase in the price of fuel sends a signal to reduce usage which has to be good for the environment and makes energy saving relatively more cost effective which can only be a good thing. Social equity could be achieved by subsidising double glazing and insulation for the poorest rather than subsidising fuel use.

Surely if benefits are too low then they should be increased rather than prices adjusted in ways that will distort demand?

  • 80.
  • At 12:12 AM on 03 Mar 2008,
  • Wayne Setford wrote:

I know this is a bit off subject, but we talk about government policy both in terms of them devising the rules of the energy markets and then increasing the obvious problems with price rises by adding VAT on top. We then expect them to police these companies effectively, protecting the consumer, while we listen to them harping on about protecting the needy and the perils of fuel poverty. The average energy bill has risen to over £1000 pa annum for the average household in the UK.

Well then the government should get its own house in order before preaching to the private companies operating in a 'competitive sector,' and explain to us why it is unacceptable for these companies yet seems to be acceptable to push more ludicrous increases on us in terms of the Council tax. Doubling in the time labour has been in goverment and creating far more poverty, far more anger and far more cost to the consumer than the energy companies could ever create. These double standards should not continue, we should not accept either examples and should get up and rid ourselves of this terrible apathy and start protesting.

  • 81.
  • At 12:18 AM on 03 Mar 2008,
  • Harry Gardiner wrote:

Gas and electric prices could rise by 100% but I bet the government won't pay 100% on O.A.P. Winter fuel payment. These watchdog commitees are spineless most of the time and just like car fuel the prices will keep on rising.I don't think it will be too long before vat goes on our heating fuel as it would certainly be a good earner for the chancellor, no matter what party is in power.It's the old story where the rich{fuel companies} get rich on the suffering of the multitudes

  • 82.
  • At 12:24 AM on 03 Mar 2008,
  • Jonathan wrote:

I am fed up with the phrase 'fuel poor'.

The reality is that some people are just poor and therefore they cannot pay for the things they need. Therefore it is the source of that poverty that should be addressed.

That will be much more effective than some - probably unworkable - gimmick announced by Alistair Darling.

Oh - yes silly me - Brown has bequeathed his successor an empty treasury so gimmicks are all that can be conjured up - in a vain attempt to fool us that things are going to get better.

Robert,

Profit *is* excessive.

Profit is extortion.

It goes to the owners, who are not obliged to re-invest it in improving the service provided, etc.

Excessive profit is a tautology, then.

  • 84.
  • At 08:22 AM on 03 Mar 2008,
  • Duncan Williamson wrote:

How about giving us some details on their cash flow projections rather than on their profits history Robert?

Profit is an invention of the International Financial Reporting Standards for listed companies anyway, as you know: that accounts for some of the lack of transparency and obfuscation you have referred to.

Cash flow please!

Duncan

  • 85.
  • At 09:13 AM on 03 Mar 2008,
  • Al Smith wrote:

Well pretty much as expected, I've called for a whaaaaaaamubulance for a large number of those leaving comments here.

Does anyone actually KNOW what proportion of Centrica's profits come from UK domestic fuel payments? No, didn't think so.

I wonder how many here are very pleased that the price of their home has more than doubled over the past few years? Despite the fact that it has priced a lot of people out of the market?

Kettle calling the pot black?

  • 86.
  • At 09:19 AM on 03 Mar 2008,
  • Richard wrote:

Dear Mr Preston,

Unlike those who have posted above I work in the energy industry (for more than a decade). The 'big six' domestic suppliers are actually my natural competitors to the company I represent so I often like nothing more than to see them dragged through the press for bad behavior...

...however your analysis of the current situation is exactly right.

What muddies the waters here is the investments these companies have in gas and oil assets which are currently very profitable. The question that should be asked is "How much money would these companies make without their consumers (selling wholesale to whomever in Europe wants to buy)?". A quick calculation shows that each of these companies is currently loosing a huge amount of money by selling to consumers.

Strange how none of their customers seem to recognise that as long as they switch to a competitive tarriff generally they are getting a good deal!

As for the fuel poor issue... The current stance of the government appears twisted. What next? Tesco to give cheaper prices to people on income support? M&S to sell clothes at a discount to those on tax credits?

There are lots of measures the government could take but do not because they would have to stump up the cash. e.g. Grants for energy efficiency measures in the homes of the fuel poor. This clearly makes more sense than making suppliers sell them cheap fuel as it both reduces their bills and helps the environment.

Instead what we are likely to get is some voluntary scheme that will not reach those really in need and the real problem of the lack of energy efficiency in our homes will be ignored. Government will dodge any accusations by making strong statements about making suppliers provide energy efficiency advice and offering voluntary schemes.

  • 87.
  • At 09:36 AM on 03 Mar 2008,
  • Pierre Gonzalez wrote:

Do you know that British Gas cheats on the Fuel Direct Scheme in order to get more money from Low income pensioners?
In my case , before the 18/01/2008 price increse I had to pay 53% more than I was consuming and after the price increase "only" 32%.
How they do it?
They make estimates of the consumption which happen to be up to 100% more than the real consumption.
I shall put British Gas to Court.

  • 88.
  • At 09:42 AM on 03 Mar 2008,
  • Scamp wrote:

Oil, gas and electricity companies do not exist to provide us with cheap and plentiful energy but to provide a return to their shareholders. That's capitalism.

If these companies could make more money out of selling us soap and baked beans then they'd do that instead.

  • 89.
  • At 09:58 AM on 03 Mar 2008,
  • Peter wrote:

Robert - it's too simplistic to say energy companies don't make profits if their price increases are less than the rise in wholesale prices.

This would only be the case if the wholesale price exactly mirrored their cost base. In fact, the wholesale price of energy represents a fairly small proportion of most energy companies' total costs.

As a business editor, you should know better than this.

  • 90.
  • At 10:42 AM on 03 Mar 2008,
  • Peter Johnston wrote:

I like this blog for its concise thinking so I am surprised to have to pick you up for sloppy thinking in this story.

"The point is that over the past 12 months the wholesale price of gas has risen by more than 50%.

But the price charged to you and me has gone up recently by around 15%.

That means profit margins are being eroded very significantly."

It means nothing of the sort. Compare the retail and the wholesale price of gas and you will see that a 15% increase will more than cover the cost of a 50% increase in wholesale supply - and add a few points of extra profit. The major cost to the consumer is the cost of maintaining a vast pipework infrastructure - but we don't see a push for reductions due to cheaper eastern european labour!

  • 91.
  • At 11:12 AM on 03 Mar 2008,
  • Paul wrote:

If the government wants to do something about fuel-poverty why doesen't it use the VAT it is already collecting? Remember it is already receiveing a windfall on this of 15% as the VAT receipts increase in line with the tarrifs.

  • 92.
  • At 12:42 PM on 03 Mar 2008,
  • Alistair McLennan wrote:

I find it interesting that everyone moans about the Power companies making money but at the end of the day, they are private companies who provide a service & the good companies make money.

Lets look back a little & see where the problem started. The problem started when the Tory Government of the time sold of what was a nationalised industry to private investors. Why would they do that? They did it so they could bribe the UK Tax Payer with less Tax so they could win an election. Thats the fundementals of the problems. Taking any nationalised industry into the private sector will always mean that the new company will always be aiming to increase its business & profits. Thats the fundementals of any business.

Re nationalising the Power Industry would cost the tax payer so much money that it is a none starter straight away.

Being an Island, if we need to gain the raw fuel from outwith our island then there will always be a high volatility in additions to the high costs that reducing your Carbon Emissions brings.

Clean life & future costs money so we can either live with it or live without it. Personally, I have reduced my power usage so that my recent price increase has had little effect.

  • 93.
  • At 01:26 PM on 03 Mar 2008,
  • Michael wrote:

cjk at post 53:

No it is not rediculously complicated. All that is required is a reduction in all those 8%s to something more reasonable, say 5%.

Frankly I think the privatisation was a bad idea in the first place, but simply taking the utilities back into public ownership would make us look like an unacceptable risk area for investors.

However, basic utilities should not be allowed to return more than basic profits.

  • 94.
  • At 01:30 PM on 03 Mar 2008,
  • anglophone wrote:

Long overdue admission that energy supply (to domestic consumers) is not the gravy train that many conspiracy nuts woould like to have us believe. OFGEM has carried out no less than three inquiries in recent years in the belief that gas companies were colluding on price support. It has never found a shred of evidence to support this accusation. The companies that own the pipes and wires are subject to some of the most punitive regulation in the world and earn a return after tax roughly the same as you would get from putting your money in the post office. The wholesale energy market for gas and power is driven by international prices over which the retailers have next to no influence. If the British public won't pay, the producers will simply sell their wares somewhere else...get used to it. When Britain was self-sufficient in gas and consumers enjoyed extremely low prices through the 1990s and beyond, there was not a murmer of discontent. Most companies were stripped to the bone and investments cancelled just to compete. Now there is a major skill shortage in the industry which is unlikely to be reversed. The "good times" came to an end about three years ago. In the medium term we must get used to the idea of energy becoming much more expensive...so, if there's a silver lining, we must all become a lot more efficient in how we use it. Put a pullover on and stop thinking that you're the victim of some gigantic plot.

  • 95.
  • At 02:05 PM on 03 Mar 2008,
  • John Turner wrote:

As a famous TV character said "I don't believe it"

Robert Peston has spent months hurling abuse at the banks -berating them for poor business practice etc. He now seeks to defend the indefensible.

Of course every sane person can see that the Energry Companies are simply profiteering. We can trade statistics for ever - so for example Robert why did the Energy Companies refuse to reduce gas price for the 4 mnths when they were all but given gas for free???

The reality is that threy are making huge profits. It matter not if those profits come from the retail market or elsewhere. By the way you seem to be confused in your thinking on % rates. A 50% increase in wholesale prices does not mean a 50% rise in retail prices to maintian margins. In fact a 15% increase in retail margin more than covers the 50%

  • 96.
  • At 02:11 PM on 03 Mar 2008,
  • Charles Brown wrote:

Robert

You quote everything in percentages, but surely this is only relevant if the wholesale price of gas is roughly equivelent to the retail price ? 100% rise of a wholesale price is insignificant if the retail price is many multiples. The suppliers may have experienced high % price rises in the wholesale cost, but how does the absolute cost increase equate to the higher retail prices ?

  • 97.
  • At 02:35 PM on 03 Mar 2008,
  • Raman wrote:

Robert,

In order to combat rising commodity prices, why don't energy companies enter into commodity swaps or a similar financial transaction in order to hedge their exposure? The cost of this would surely be cheaper than, for example, the 50% increase in raw prices of gas for example over the past 12 months.

Raman

  • 98.
  • At 03:22 PM on 03 Mar 2008,
  • David Anson wrote:

Not really a comment on the subject matter, more the correct - and increasingly rare (especially in BBC journalism) - use of the phrase 'you and me'

Well done, maybe you could educate some of your colleagues.

  • 99.
  • At 03:51 PM on 03 Mar 2008,
  • Gaz wrote:

I never realised that the cost of the basic material governed the whole cost of the end product: obviously we all ought to be paying 50% more that before then. And this hardship has only allowed for massive profit increases.

I now feel so sorry for the power companies that I am prepared to accept everyone's shares in the companies, at no cost to myself, just to unburden you all.

  • 100.
  • At 07:31 PM on 03 Mar 2008,
  • Richard Salmond wrote:

It is not the fact that they are increasing their prices by 15% when wholesale costs have increased by 50% which I would dispute, but that the market as a whole operates a monopoly and what we have seen is a concerted movement by the gas suppliers as a whole increasing their prices by remarkably similar percentages in a small timeframe. It is this, if proved true, which is illegal and contrary to competition laws.

  • 101.
  • At 07:38 PM on 03 Mar 2008,
  • Mick wrote:

I have suggested natural resources should be owned by the public, not by shareholders.I accept business exists for profits, but humanity has the power to provide the basics without profit in 2008,lets keep poeple warm, I appologise for my grammer but not for my oppinions.

  • 102.
  • At 07:57 PM on 03 Mar 2008,
  • Geoff Brown wrote:

It is always going to be difficult to feel sorry for energy companies who are quick off the mark to push up their prices when wholesale gas and oil prices go up and are slow to respond likewise when prices come down.

Although you (Robert Preston) say wholesale gas and oil prices have gone up over 50% during the past 12 months and consumer charges have only been increasd by 12% that does not necessarily mean the profit margins have been erroded to the same extent.

Most large companies employ analysts (who are specialists in their field) and their job is to determine what the future price of the commodity they sell is likely to be and that is the figure used to calculate how much consumers will pay. A glance at the different tariffs charged by the major energy distributors clearly shows some are better than others at determining what this figure is going to be and then how much to charge the consumers.

  • 103.
  • At 08:44 PM on 03 Mar 2008,
  • Alex wrote:

Should we consider going to war and taking the gas and oil from countries which have it?
Or, should we just pay the going rate?
Perhaps our politicians could negotiate a good price and reliable supply from the oil and gas nations.

I believe Roberts comments are skimming off the sound bites and not drilling into the detail.

Statistic are renowned as being crude measures so 50% increase in raw costs does not necessarily equate to the funds generated by a 15% rise as being reasonable.

The bottom line is that these companies while keeping their price rises at less than the increase in raw materials are actually making embarassingly huge profits.

Clearly they are not suffering but customers certainly are. Fuel and electicity companies are making vastly increased profits on the rise of raw material costs.

This is highly damaging because it drives up inflation which drives up wages which in turn drives up inflation leading to yet further increased fuel costs leading to...

The power utilities are greedy companies who should be smacked into line with a windfall tax distributed not just to the needy but to ALL of the customers suffering from overcharging.

  • 105.
  • At 01:08 AM on 04 Mar 2008,
  • Nigel Perry wrote:

A profit figure of £XXX million means little, because a large company could make a profit of hundreds of millions of pounds and still be in difficulties.

The figure that counts is the return on capital employed (usually expressed as a percentage). If that figure is less than you would wish to obtain from your savings account then the capital tied up in the company - possibly billions of pounds - is producing a dangerously small return.

  • 106.
  • At 07:13 AM on 04 Mar 2008,
  • Adrian wrote:

There are two key points that need to be addressed.
1. Are the retail costs from the energy suppliers competitive. All consumers should be paying a competitive price for fuel. There is insufficient transparency in the Market for any consumer to make a true evaluation. The gas suppliers are using the same approach as the petrol companies in making limited profits from their retail businesses but making substantial profits from their wholesale businesses.

2. Should some consumers cross subsidise other consumers based on income? No. We all need to be paying a competitive price for fuel.

If the government are really interested in fuel poverty then drop the VAT on Fuel. How much incremental revenue has the government taken in by the increases in fuel prices?

  • 107.
  • At 08:34 AM on 04 Mar 2008,
  • mike wrote:

How is it we spend public money on propping up private Banks but we can't be invoved in the basics of human existence water and heat?
Take the utilities back into national ownership where they belong, they are too important to be left to the greed of the wealthy, often of other nations and the pathetic attempt to de politicise them with the hopeless "regulatory" layers has proved at best farcical and at worst self effacingly expensive.

  • 108.
  • At 10:50 AM on 04 Mar 2008,
  • Dan Nanson wrote:

People who claim that the 400% rise in profits ove 2006 from British Gas are bad need to remember this - 2006 was a terrible year for BG, barely break even. With turnover of £7.1 billion the operating profit was only £95 million, the margins were only 1.3%. Is that a great return? You get 5x's as much at a regular bank so I think not! People, be very aware of the fact papers are trying sell hence misleading headlines. PLEASE LOOK AT NEIL MANTRIPE's POST 71 ABOVE- there is someone who seems to understand - it is not so great.

  • 109.
  • At 02:40 PM on 04 Mar 2008,
  • Steve wrote:

Whilst I agree that energy prices in the UK are expensive, they are still amongst the cheapest in Europe. Also, what most of the people who have posted on here don't seem to realise is that if UK energy companies didn't make profits, the energy we have all become so reliant on would simply disappear. It is profits that are ploughed back into ensuring there is sufficient energy for the future. Most of our energy will be imported by the mid 21st century and this means it will cost more to deliver it to us, the North Sea gas is running out, can't people understand that? New energy sources, wind turbines, etc. don't come cheap (around £1 million per megawatt), where do you think the money comes from to fund things like this? Also, put into perspective, the profits announced by British Gas recently equate to around £30.00 per customer, would you say that is a massive amount to make off each customer per year? I wouldn't!!!

  • 110.
  • At 04:10 PM on 04 Mar 2008,
  • Matt Marshall wrote:

plain and simple this is about inflation. Brown and Darling are really fed up with the utilities because this price increase wrecks their (sorry, the BoE's) ability to slash interest rates and save the housing market, which has been NU Labs economic golden goose. The resort to bully boy tactics is unfortunate, especially as we need these pan-european countries to be convinced to invest in new power stations here, rather than let the lights go out in 5 years time. Perhaps privitisation is not always the best answer in some core industries...

  • 111.
  • At 07:38 PM on 04 Mar 2008,
  • Ron Lansdell wrote:

Every one is harping on about gas & electricity prices & how it is causing hardship. What about us that have to rely on heating oil, that has gone up far greater than gas & electric. Feb 2007 900 litres oil was £286 Dec 2007 900 litres was £434 & rising. This is a rise of 50% in 9 months. What about poverty vouchers for us.

  • 112.
  • At 10:10 AM on 05 Mar 2008,
  • Mark wrote:

I would make the following comments on this subject. This is the only country in europe that has prepayment meters in all the other countries. European countries cut you off if you dont pay your bill. Energy suppliers have to pay a third party (Post Office Paypoint, Payzone) for every prepayment purchase you make which is an additional overhead.

  • 113.
  • At 10:27 AM on 05 Mar 2008,
  • Paul wrote:

Just wondering if anyone remembers BG putting their prices down by 22% last year?

This means that their prices are still 6% lower than 2006 even though energy prices are still rising.

Is this justa little fact you all like to forget so you can have your little gripes?

  • 114.
  • At 11:07 AM on 05 Mar 2008,
  • D Andrew wrote:

Centrica posted £571m in profit in the residential arm. This sounds like an excessive amount but less so when you consider that it has 17 million customers. The profit works out at about £35 per customer. Not exactly a huge margin.

  • 115.
  • At 11:48 AM on 05 Mar 2008,
  • p kelly wrote:

"Whilst I agree that energy prices in the UK are expensive, they are still amongst the cheapest in Europe." Steve 2:40pm 4 March 2008

Rubbish mate. I've just looked up GazdeFrance on their French website. Shows 4.6cents per kWh for gas(6,000-30,000 kWh annual usage). British Gas since 18 January 2008 charge 6.2p per kWh for Tier1 and 2.7p per kWh for Tier2 consumption; that's about 8.7 and 3.8 cents(1 euro = 71p) respectively. Tier1 applies to the first 3,000 kWh usage in a year, Tier2 the remainder. Work it out mate: For someone using a typical 15,000 kWh a year that works out to an overall price of 4.8cents per kWh(0.2x8.7 + 0.8x3.8).

PS Germans pay on average 4.6cents per kWh(again converting at 1.4euro to the pound). source: http://www.bild.de/BILD/news/wirtschaft/2008/02/22/gas-erhoehung/verweis-pdf,property=Download.pdf

  • 116.
  • At 02:16 PM on 05 Mar 2008,
  • Oscar Wild wrote:

What everyone is missing here is that the goverment are now thinking of helping the poor with a benfit handout because of the high price. Unfortunately Mr Brown has failed to add that with the latest increase in Gas and Electricity he is making and EXTRA £415M in VAT. This brings his total to £1.2B in Vat on energy so dont lets always blame the supplier who wont make anywhere near this much out of the product they sell. The same equation applies the Pertol/Diesel. We all blame the high fuel price on Shell/BP etc. Mr Brown takes £815M in Vat on this too, which doesnt include the massive Tax collection from the prfoits these companies make. So come on the UK public lets stop blaming the companies and lets start blaming the goverment for wasting so much taxpayers money and therefore have to collect so much to cover it.

  • 117.
  • At 07:58 PM on 05 Mar 2008,
  • Paul wrote:

I dont think you are understanding British Gas. British Gas has 17 million customer's compared with Npower's 9 million.

Nearly twice the customers but a profit differance of 10%?

Also Those people talking about the overheads of pipelines and meter's etc arn't upto date. Pipelines and meter's are not owned by British Gas, infact the gas and electric side of things is soley on an agent basis as is the same with all the other energy companies. We buy from someone else, allow transco to ship it to the customer and various meter agencies to measure it. We dont actually own anything except for the call centres that look after it.

A large part of British Gas' profit is in fact derived from its Home Services department - 3 out of 5 boilers in england are serviced by us.

The idea that a company should be run with some altruistic view where the customer comes before profits are deluded, the only way that can and would happen is through nationalisation.

The only true way a company can make headway is in a high pressure position where we have the best minds who of course require the best pay. This is where I beleive we are.

I've had the pleasure to experiance the changes within British Gas from the inside and can lay testement to the immense improvement over the last twelve months.

This has been led by Phil Bentley who I have had the pleasure of meeting and I can assure you that profit may leave a bad taste in peoples mouths but it is truly the only way to encourage an industry that works.

Without profits there are no investors.

  • 118.
  • At 10:25 AM on 06 Mar 2008,
  • Ben wrote:

I agree with Paul above, too often are the media and consumers alike quick to point the finger at Centrica for posting high profits for the last year. These same hypocrites fail to mention that Centrica owns various Energy arms across the planet, and British Gas alone has over 16 million customers, (twice as many as the next) not to mention the 1 million plus Business customers at BGB. Of course a company of this magnitude is likely to make profits based purely on customer numbers - Also there is no mention of the fact that in the final 3-4 months of 2007 the profit margins fell dramatically and British Gas were essentially making losses based on the new wholesale prices.

Combating fuel poverty is also an area that Centrica is leading the line, providing lower tariffs to vulnerable customers, at the same time as servicing 3 out of 5 of the UK's boilers. This means that the profits British Gas and Centrica makes are being pumped into finding renewable energy sources and therefore protecting our future - building new power stations and working round the world to protect this country going forwards.

Every company needs to make a profit, otherwise there would be no point in operating, it is just that the size of Centrica (still English I might add) means that they make more money in the long run.

  • 119.
  • At 07:01 PM on 09 Mar 2008,
  • Mike Cook wrote:

The real culprits here are the banks and pension funds whose speculative purchases of UK wholesale gas and power are triggered by increases in the cost of oil. If the criteria for purchasing UK Wholesale Gas and Power were simply that companies doing so had to be UK enegy suppliers then the cost of UK energy would be a lot lower than it is.

  • 120.
  • At 01:56 PM on 11 Mar 2008,
  • Ian Bedworth wrote:

The massive profits of the energy companies stem from the fact that each arm of a company is charged with operating at a profit. British Gas could probably give their gas away for free and still make an overall profit! However, they do not operate with 'loss-leaders' like supermarkets, etc.
I do feel that these excessive profits are designed to featherbed their home markets. The UK customer always seems to pay far more for energy than mainland europe.

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