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Six energy firms under investigation for price rises

Robert Powell on 26 August 2011 |

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A forensic set of accountants has been set on the six main energy companies to investigate their profits and margins in light of recent price hikes. Robert Powell reports...

Robert Powell reports on two investigations into the big six energy companies and finds out how you can avoid being ripped off for your gas and electricity...

More: 100,000 energy customers overcharged | Don't get ripped off by energy firms | The secret trick you can use against your energy provider

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599

Mike10613 said

OFGEM has sent a letter? What next a slap on the wrist? OFGEM needs a slap itself...

Report on 30 August 2011 | Love 0 loves
0

tachoman4 said

What a completely pointless exercise!!!! they wont DO anything anyways...Quite simple we in the UK are stuffed !!!

Report on 30 August 2011 | Love 0 loves
1

jwseabrook said

Perhaps it's time we all boycotted an energy company, which might just eventually push prices down. Consumers shouldn't have to put up with all this greed on the part of these companies.

Report on 30 August 2011 | Love 1 love
47

Luniversal said

These headliine-catching investigations take the heat off politicians, but never produce any lasting benefit for consumers. Water is a monopoly, gas little better and electricity has been effectively cartelised under a spineless regulator.

All these constantly varying tariffs, special offers and gimmicks are intended to bamboozle customers and enrich price comparison sites. Switching is futile. a zero-sum game.

Renationalise the industry, install your own generation and sell the surplus to the grid, or accept that electricity is yet another example of Britain as Treasure Island for big, mostly foreign-owned corporations. The public are too lazy, ignorant or guileless to mind being shafted-- as long as it's not too hard.

Report on 30 August 2011 | Love 0 loves
31

poppasmurf said

I think I will embark on creating a single small fuel cell to power your house, to hell with all this fossil fuel nonsense its so 19th Century and to hell with the energy companies.

Report on 30 August 2011 | Love 0 loves
1

UtilityBaron said

Firstly: I don't work for the Big 6 (I work for a small competitor) but...
1. This is not a simple issue
The big problem is that Ofgem don't understand the wholesale market properly and as all the Big 6 but British Gas have businesses in other countries it is not always clear where money is being made. Ofgem is almost entirely staffed by economists rather than people from the utility industry so they dont stand much of a chance.
e.g. If EDF in France sell EDF buy some Norwegian/Russian gas at 10p/therm below market price and then sell some of it to the EDF in the UK at 10p/therm above market price who made what money and where???
As the Big 6 do hundreds of trades everyday it is easy to see why it is difficult for the That is why they are employing forensic accountants to dig through the figures and answer the questions for them.
2. The REAL disgrace that a large proportion of the increase in energy costs is actually due to Carbon Taxes and Smart Metering. The Big 6 are too scared to say so as they fear a PR backlash from the environmental lobbyists plus for the last 10 years the system of 'carbon credits' has meant many of them have made huge profits on the back of these schemes. Note: The government is well aware of this but no party has won an election without some 'green credentials'.
3. High energy costs are forcing manufacturing off-shore. A good example of this is flat glass production (e.g. glazing for windows) which is now being exported to India and China. As glass has virtually no wage cost in the price (its a fraction of a percent of the cost) it is made up of the cost of the factory and energy costs. This second part is now so high that it is cheaper to ship glass from China than to make it here.
The irony is that as the Chinese are less efficient at producing glass and you have to include the energy in shipping the glass, the 'carbon footprint' of glass is actually increasing.
Of course the government dont care as it makes it look like we in the UK are decreasing our carbon output which (they think) makes us look good.
4. You are soon to be told the answer is something called The Green Deal. It was recently decribed as a Panorama programme waiting to happen. All I will say is read the small print very carefully if you own your own property and make sure you check the APR of any loan.
5. If you want the best price avoid buying via a price comparason website or a broker. They make money from the suppliers and these costs are built into the price.
6. Where possible search out smaller suppliers who will price from the wholesale market. You may get fixed into a deal for a year but they should be able to give you a breakdown of your price (commodity, transportation, metering, meter reading, balancing, cost to serve, credit risk and overhead/profit).

Report on 30 August 2011 | Love 1 love
56

GaryDean said

The corporate world has become a den of vicious, thieving wolves who operate above the law. They, for the most part, pull the strings that keep our blatantly insincere & charachterless politicians under control. They are imposing a totalitarian state of economic slavery upon us through high prices & credit. I agree totally with Luniversal. However, on the point of a lazy ignorant public I don't entirely agree. Most people are appalled by the present state of things & are feeling the pinch but simply don't know what to do about it. Even if they were to try, as some have done by conducting or attending peaceful demonstrations, these wolves would send in their thugs to instigate or incite violence to demonize the demonstrators thereby throwing the spotlight effectively off of themselves.
They would then use their media to lull us all back to sleep with reality TV or outside issues that would yet again distract us from the real issues. And then, of course, use those issues to justify another round of price rises to tighten their grip even more.

Report on 30 August 2011 | Love 1 love
1

ronsbike24 said

I cant understand why the BIG 6 Energy companies have any customers left, we must be a real stupid lot to stay with them when there is choice.
Im no big brains when it comes to economics but surely if there were companies out there that made sure they were always the cheapest and making only fair profits there would be a good chance that the 6 ripoff merchants would go out of business.
Or perhaps re nationalising is the answer.

Report on 30 August 2011 | Love 0 loves
17

nickthecrip2 said

Perhaps I missed it or misunderstood, but the brief remit description didn't say anything about the massive profits these companies are reaping out of us, just about their accounting methods being more transparent! Being more transparent in their billing or explanations of costs wont do a thing about the price fixing/hiking going on. Maybe, any investigation will be like the recent one about the major supermarkets fixing prices-that one took over eight years to conclude & that was with one of the companies involved whistle blowing! How many years will this one take, I wonder, & will there be any outcome?

Report on 30 August 2011 | Love 0 loves
56

JOHN MAXWELL said

if we are paying for Ofgem to regulate prices why do we need to employ another agency to investigate. privatisation of the energy supply industry has not worked and i hate to say it but this may be a justifiable case for nationalisation. my biggest gripe is that having selected your energy supplier they do not ensure you are on their best tariff for your usage. i have experienced this twice in 2 years with npower, although the comparison sites tell me i am with the cheapest supplier my supplier does not ensure i am on the cheapest tariff.

Report on 30 August 2011 | Love 0 loves
33

T5P8 said

Hello, What is the point of whinging on here.

I agree with you 'GaryDean'.

We have no spokesperson to voice our opinion anywhere on any topic, the unions would be perfect as it is democratic. Pity they didn't evolve after Maggie massacred them, but there is still time. we do need a voice at country level to speak for us on so many topics.

Report on 30 August 2011 | Love 1 love
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UtilityBaron said

@nickthecrip2 -
Ofgem conducted a market probe a couple of years ago and concluded that it needed more information to understand if the Big 6 explanations for price movements were reasonable or if they were hiding profits offshore or in generation or trading businesses (see my previous post for an example). They also wanted to encourage new entrants to the market.
Ofgem decided to force the Big 6 to publish full accounts of their costs and profits as a way of comparing Big 6 costs and to show any new entrants the levels of profits available in the market.
Now any economist will tell you that 'market information' is an important part of 'market liquidity' which should lead to a more 'perfect market'. In laymans terms this means that publishing this data should encourage Tesco's, Virgin, Vodafone and anyone else with a few million £ to invest as they would know how much profit they could make... And as they would need to undercut the Big 6 to get customers this would decrease the market price until it hit a point where it was no longer economic for the suppliers to keep providing energy.
That was the theory anyway...
The problem was that the Big 6 all submitted the data in different formats, using different methodologies for accounting and at different levels. To illustrate lets think of an example customer:
Customer X -
Customer has one contract they pay on their mother-in-laws house (electric)
Customer has one contract on my house (gas and electric)
The mother-in-law has a solar PV system on the roof of her house and is paid a Feed-in-Tariff for electricity exported to the grid.
In this example there is one signatory on the account and probably one direct debit but two properties and two householders
There will be one gas meter and at least three electricity meters (PV systems must be metered independently).
Usage on the electricty side could be calculated using the customers overall consumption, their import consumption or their overall consumption net of exports.
Energy usage could therefore be quoted in several different ways and therefore the average cost of energy could be quoted several different ways.
Without a consistent baseline it is difficult for Ofgem to understand... (As I spend 1/2 days a week arguing with Ofgem I can't believe I'm defending them).
Now what I think is going to happen is as follows:
1. The forensic accountants will raise a number of questions on inconsistencies in the Big 6 figures
2. Ofgem will say they 'may' refer the market to the competition authority
3. Ofgem and the government will squeeze a number of conscessions out of the Big 6 for special tarrifs for the 'fuel poor' and reform of the electricity wholesale market and claim that they are tackling the problem
The reason they wont go to the competition authority is twofold
a) As an independent regulator the last thing they want is the ego bruising that a CC investigation risks
b) The government wont want the CC to explain that it is mainly environmental and smart metering costs that are increasing prices

Report on 30 August 2011 | Love 0 loves
1

UtilityBaron said

@John Maxwell - I know your concern is being looked at right now by Ofgem. They are suggesting that suppliers should have to publish on each bill the details of their best tariff.
I'm not convinced myself by this. I personally think that if they guarentee that you are on the cheapest tariff then they should be required to ensure this stays true for a stated period of time (e.g. a year).
The problem is that often they (the Big 6) dont make any money on these tariffs (despite what you may think) and rely on a % of those that switch staying after the fixed period is up. Yes the price goes up after this time but that is how they pay for the discounts they offer. You need to take advantage and make sure you switch supplier.
BTW
Note my advice earlier... price comparason websites are hugely hypocritical as they get paid by the Big 6. Go direct to get the best deal, negotiate them down on price and search out smaller suppliers (there is a list on the Ofgem website).

Report on 30 August 2011 | Love 0 loves
1

UtilityBaron said

@ronsbike24 - The problem is that as long as they are all as sh&t as each other they know that the same customers go round and round.

But I am as guilty as the next person. British Gas is my supplier and I have no idea why as I am disappointed daily by their behaviour...

...Oh actually I do know why. They were the cheapest at the time I last switched!!!*

*factually true and not an advert for BG

Report on 30 August 2011 | Love 0 loves
0

stevegeorge said

Overuse of uppercase will be tamed (you can edit your comment to prevent this):

well talk talk are fined 3 million so there is hope
And now here are some pictures to help lighten the mood

Report on 30 August 2011 | Love 0 loves
0

ACL said

I am a user with British Gas electric and gas. The biggest con I find is the payment method. The first initial amount is charged at a higher rate than the remaining amount.
I have tried to find out from British Gas for years (1) how they determine the unit quantity of the initial amount and (2) the unit price of the initial amount.
No one has been able to explain this to me and they just change it at will.

Report on 30 August 2011 | Love 0 loves
1

preachermam said

stevegeorge
Well ..Well (could have used one of those instesd!)
What a 'waste' of Pure Energy posting enlightening mood enhancing kitchens!
As for Cost now. I've absolutley No compunction in deriding the use of...
...howvever or whaetever Spike or Hike it takes in paying for the use of whateaver quantity/quality of water in drowning that sorry, nauseating, gaggle of furballs would suit me fine. Personaly paying double, nay treble my existing bill to see them flushed out of my Cistern.
me..ow, Ow-that must've hurt. whateverrr next? i do love,money tho!!

Report on 30 August 2011 | Love 0 loves
6

Crispvs said

I used to work for British Gas. While we were in the corporate training which took up the first two weeks of our employment there, someone asked the training officer how the prices charged broke down. The training officer though this was a stupid question and initially refused to answer it but after a while admitted that the prices did not break down at all in the accepted sense but were simply what the company decided to charge. When she was asked what to say it a customer asked how the prices broke down she advised us to "make something up - they'll believe anything they are told". We asked the same question of various team managers and other members of the training team and the answer was always the same. Prices were simply whatever the company decided to charge and customers would generally accept any explanation they were given. Several members of the training team had worked in the same role for other suppliers and they gave the impression that this was the way all of the other companies operated as well.

Report on 31 August 2011 | Love 0 loves
4

marcus1 said

Well Done! It's not the first time and it won't be the last (we're all human after all)

Report on 31 August 2011 | Love 0 loves
8

OT Hill said

The BIG problem (of course) is that OUR utilities were privatised - and very soon (surprise, surprise!) were sold off to foreign concerns. Serves you right, all you who voted (and probably still DO!) Tory. If the huge profits from these utilities were STILL in OUR hands, we could reduce taxes substantially. Too late now, though.

There are still a few organisations left for the present bunch of carpetbaggers to sell off... but we COULD use our voices to stop the Tories selling EVERYTHING else off - however, as a long time observer of what the dimwit electorate think... I'll be wasting my breath. We are idiots for letting it happen in the first place.

Report on 31 August 2011 | Love 2 loves
27

Dame said

As has been mentioned previously, much of our current problems can be laid at the door of a poorly conceived privatisation. Ah yes the joys of privatisation. Too much choice is not always a good thing.
There are some activities Government should not be involved in; airlines, making cars, making steel etc. There are some activities that are too important to the nation to be left the market. Some privatisations were a huge con. Sometimes, having something that works well is enough. Much like British Gas, The Electricity Boards and BR. Even the much quoted Adam Smith in his tome 'The Wealth of Nations' recognised that natural monopolies should be run by governments.
Selling our Nuclear Power Stations off to the French should be considered an act of treason. Are you listening Gordon Brown?

Report on 31 August 2011 | Love 1 love
27

Dame said

'Climate change' gives all governments a wonderful excuse to endlessly pile various 'green' taxes on us. They pretend that somehow this is good for us, as if these taxes are a form of Opus Dei type repentance for being naughty energy guzzling consumers. What a wheeze.

Report on 31 August 2011 | Love 0 loves
17

nickthecrip2 said

UtilityBaron-thank you for your explanation & I think I can understand what you are saying, which is: we are all screwed! If our elected government wont/can't/are too afraid of big business to, do anything to protect us from these financial scavengers then, we are screwed. They didn't stand up to the banks while they just about bought the whole house down, except to give them even more of our money, they wont stand up to the water companies doing just about the same things as the energy companies, so what chance do we get for paying a fair price for our energy needs? Answer: None! WE ARE SCREWED!

Report on 31 August 2011 | Love 0 loves
643

electricblue said

I seem to recall that the 'Dimwit Electorate' voted for a certain Tony B Liar. None of the nationalised industries were ever run efficiently, the idea of 'massive profits' being distributed to the masses is as laughable as the idea that unions have ever been other than a leeching parasite on private enterprise. If you don't like being an employee, then get off your rear and start your own business. Utility companies are greedy and inconsistent in pretty much every country, some have the same farcical situation with their telephone and internet companies too (France is a joke in that respect). Fact is that we do a lot pretty well in the UK and that is despite governments of all persuasions doing their best to mess things up. As far as watchdog organisations always being powerless, tell that to Talk Talk who are just raiding their piggy bank to find a £3M fine.

Report on 31 August 2011 | Love 1 love
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BUFFALO 1 said

When is this Government going to step in and stop these big companies looking at the British public as a never ending means of extorting money. Surely a Government is elected to look after the welfare of its people but not where gas and electric prices are concerned. They seem totally oblivious to what this really means for normal people whose living standards have continously fallen year on year. Sadly I think we are at the point for a lot of people that there will not be the money there to pay one penny of the recent price rises. Are we happy as a nation to accept that the elderly and poor will just have to suffer. Britain is going down the pan fast and we seem powerless to stop it. I personally despair every time a new announcement is made about uncontrallable price rises. Where do the energy companies and the Government expect consumers to find the money from? They just don't care.

Report on 01 September 2011 | Love 0 loves
14

rightoncommander said

I agree with electricblue regarding Unions: from one "dimwit elector" to another, they are a leeching parasite on private enterprise. Just look at how the world has gone backwards since unions gained a decent amount of power in the 19th century! The progress that could have been made without them!
Unions are rude, obnoxious, bullying, power-hungry and unreasonable with no idea of objective reality. There is nothing to like about them, except that they are the perfect counterweight to the untrammelled power of bosses that was witnessed during the industrial revolution.
The idea that everyone could quit their job and start their own business instead of joining a union is rather fanciful to say the least - taken to its conclusion there would be no businesses, only self-employed individuals! That would make running a factory rather interesting...
Sometimes economics simply cannot be allowed to act unchecked. Power is one of those cases, as the companies' behaviour repeatedly demonstrates. There is no choice, there never can be, so (renationalisation aside) regulation is the only way to protect consumers' interests.

Report on 01 September 2011 | Love 0 loves
3

joe turner said

ELECTRICBLUE will have a big laugh when he chairs the next board meeting of British Gas.
His advice: Get out your bike and start your own business. You shouldn't have voted for T Blair. All privatised companies are now running efficiently (tell the train travelers). The unions are leeches.
Thanks for your input.

Report on 01 September 2011 | Love 1 love
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UtilityBaron said

@ ACL - The reason for this higher rate for the first units is to recoup the costs that the supplier must pay irrespective of the number of the further units you use. A good example of this is the cost to rent the gas meter (last time I checked, about £15/year) or send a meter reader to a customers site (about £6 a read). For a domestic gas user about 25%-30% of the costs are non-commodity (gas) costs. The rest is the cost of getting the gas from the entry terminals at the coast to the customers own pipes and then billing them for it.
The supplier will also include in here the costs of running the various fuel poverty and insulation schemes the government requires them to operate. (If you thought that the these things come 'free' think again - it all gets bundled into your charges).
You may wonder why the suppliers do not just charge a standing charge like they used to. The answer is that some consumers use tiny amounts of gas and generally these are poor or old people (I know its wrong to stereotype but in this case trust me the data suggests this is true). Consumer Focus (previously Energywatch) therefore lobbied to stop domestic suppliers charging a standing charge.
You may have worked out that this means that the supplier will not recoup all the non-commodity costs for these customers. Again the costs of this will get built into the pricing models to set the price.
The solution to this is price transparency (like large firms in the Industrial and Commercial market already get).

Report on 01 September 2011 | Love 0 loves
1

UtilityBaron said

@Crispvs -
Despite what you may have been told British Gas has a whole pricing team that works out how much profit they expect to make from the various tarrifs they charge. How do I know? Well I know some of the people that work there and I sit in Ofgem/industry meetings and argue with them!
One of the biggest problems is that the domestic market mainly uses tarrif pricing rather than fixed term annual prices (like an insurance quote). Tarrif pricing makes it difficult to assess how much profit the Big 6 will make from a tarrif when they set it and complex to work out how much they did make after the bills have been set.
The Industrial and Commercial market is virtually all either 'fixed term' or 'index priced'. In simple terms:
'Fixed price' is a set price for usually 12 months - The supplier will buy the energy they expect you will use from the wholesale market on the day that you accept the contract. This gives the customer some certainty about the price they will pay for their energy and is usually cheaper than a tarrif price.
'Indexed price' is a variable price that changes as the commodity market price changes (often this is a 'on the day' or 'day ahead' price) - The supplier will buy the energy on or just before you use it from the wholesale market. This is usually the cheapest way to buy but is uncertain. If the market goes up in price you will immediately feel the effect.

Report on 01 September 2011 | Love 0 loves
20

mepink53 said

most of our gas and a fair amount of our electricity is imported.why oh why do we allow ourselves as a nation to be held to ransom by these foreign companys? cast your mind back to the days when thatcher privatised everything the utility companys included.that evil woman has a lot to answer for.utility companys should be owned and run by britain and not dependant on the whims of foreigners who seek to rip us off.what happened when they found north sea oil and gas?we were promised cheap gas and oil but it never materialised. we got ripped off by our own politicians and they continue to do it now.i have no faith in any of them as in my opinion they all lie through their hind teeth and are only interested in feathering their own nests and couldn't give a monkeys about the people they are supposed to serve.

Report on 02 September 2011 | Love 2 loves

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