Big Six Bosses v Energy and Climate Change Committee - Starts 2.30pm

[whinmoor]

Watch Online Here: Player


The Energy and Climate Change Committee has today invited bosses from the Big Six energy companies and other smaller energy suppliers to appear before Parliament on Tuesday 29 October starting at 2.30pm.

Sir Robert Smith MP said:
“The Committee has today decided to call in the energy bosses in the context of the latest wave of price increases.”
The session will explore a range of issues, including:

• Reasons and justification behind recent energy price rises;
• Difference of pricing policies between energy suppliers; and
• How the transparency of energy company profits can be improved.

 

[Worcester]

16:46 looks like it's all over, guess a usual late day for these guys... There again they probably think they haven't a lot to answer for

Here's the rub:
(And I thought ECO / HHCRO was supposed to be funded by the energy companies NOT the consumers)

 

[FB.]

I think too many consumers expect something for nothing. Any company should be allowed to make a fair and reasonable profit which will encourage investment if the profit is sufficient (just like many people jumped on the solar gravy train when tariffs were generously high).
They operate with wafer-thin net profit margins around 5%, which, along with being a political football, explains their lack of interest in building new powerplants.
How many people would bother running their business if the margin was only 5%?

While I am pro-renewables, I am not pro-renewables to the extent where we drive bills worryingly higher through a variety of extra costs such as decommissioning older "dirty" power stations (leaving a power shortfall - which, as you'd expect, drives prices up until the highest bidder remains), or the various costs of subsidies and incentives.

The worrying thing is that if "Red Ed" gets into power and price-caps the utility companies, he will almost certainly get the temptation to start capping other prices in the economy too, leading to shortages. Price controls and government controls fell with the Berlin Wall. We really don't want to go back there.

What I find hilarious is that the profit margin for utility companies is only around 5%. Yet nobody even queries the 13% profit margins made by food/household products giant "Unilever" or the Telecom company "BT" - let alone the 23% margin of United Utilities (NorthWest Water). All provide products and services as important as the gas/electric companies but while everyone is hysterically fixated on the low margins of the power/gas companies the other companies carry on charging far greater margins.

Lloyds, Barclays and suchlike literally laugh all the way to the bank with their huge 30% profit margin....and as for British American Tobacco: their profit margin is almost 40%.

So a sense of perspective would be useful as to which companies are the real rip-offs. Don't wish price controls on someone else unless you're prepared to accept price (or profit, or wage) controls yourself.

 

[Worcester]

They're back again (17:00)

 

[Worcester]

Was that all words, or any real information?

 

[Darkwood]

I think too many consumers expect something for nothing. Any company should be allowed to make a fair and reasonable profit which will encourage investment if the profit is sufficient (just like many people jumped on the solar gravy train when tariffs were generously high).
They operate with wafer-thin net profit margins around 5%, which, along with being a political football, explains their lack of interest in building new powerplants.
How many people would bother running their business if the margin was only 5%?

While I am pro-renewables, I am not pro-renewables to the extent where we drive bills worryingly higher through a variety of extra costs such as decommissioning older "dirty" power stations (leaving a power shortfall - which, as you'd expect, drives prices up until the highest bidder remains), or the various costs of subsidies and incentives.

The worrying thing is that if "Red Ed" gets into power and price-caps the utility companies, he will almost certainly get the temptation to start capping other prices in the economy too, leading to shortages. Price controls and government controls fell with the Berlin Wall. We really don't want to go back there.

What I find hilarious is that the profit margin for utility companies is only around 5%. Yet nobody even queries the 13% profit margins made by food/household products giant "Unilever" or the Telecom company "BT" - let alone the 23% margin of United Utilities (NorthWest Water). All provide products and services as important as the gas/electric companies but while everyone is hysterically fixated on the low margins of the power/gas companies the other companies carry on charging far greater margins.

Lloyds, Barclays and suchlike literally laugh all the way to the bank with their huge 30% profit margin....and as for British American Tobacco: their profit margin is almost 40%.

So a sense of perspective would be useful as to which companies are the real rip-offs. Don't wish price controls on someone else unless you're prepared to accept price (or profit, or wage) controls yourself.

This isn't about profit margin and comparisons its about you me and the old lady been able to afford to turn the heating on or cook a meal... your comparisons are choice markets in that its not life threatening if you can't afford your tobacco or buy the best phone ... you can't honestly belief the big 6 endless excuses yet always dodging direct answers, if energy profits were in line with other business structures it would price us out of the global market while marking a few fatcats extremely rich not that 2.5million after bonus to the boss is a bad deal from a company crying its hard times and showing record profits on the consumer market while maintaining they have there hands tied behind their backs...

It was very interesting to see Ovo's representive revealing true market costs they paid over the last few years and expressing they wish to be a transparent energy supplier and reviewing all the market costs he commented that none of the calcs the big six put forward make sense...

When a business is the life line of the nation it needs strict control and profit caps the consequences would be dire to the uk's market otherwise... no company will set up or expand when they can't afford to pay for the Energy in Britain and investment would go elsewhere...

Regarding the profit margins 5% i will agree isn't much for a business but when you have a turnover of billions it not such a small amount, some of these suppliers are foreign companies now if the deal was so bad for them why on earth would they continue in the uk market.. ?

 

[FB.]

This isn't about profit margin and comparisons its about you me and the old lady been able to afford to turn the heating on or cook a meal...

Well, if the companies only make a profit margin of 5%, then that is the MAXIMUM cut which could happen. So even if the companies operated on a not-for-profit basis (or were state-owned with no competition - which tends to encourage bureaucracy rather than innovation; I've worked in healthcare and the number of middle-managers is outrageous) then a £1500 annual bill could be trimmed by £75.

That's it. £75 off a £1500 bill is the best that could be achieved even if the government takes ownership of the companies and - despite its already eye-watering debts - tries to borrow the vast sums needed to build new power stations and keep the grid functioning.

It's a mountain out of a molehill. There are many easier ways to make people's cost of living more affordable than bashing the low-profit-margin gas and electricity companies. But while everyone is hysterical about them it takes attention away from all the other rip-offs.

 

[FB.]

There are many easier ways to make people's cost of living more affordable than bashing the low-profit-margin gas and electricity companies. But while everyone is hysterical about them it takes attention away from all the other rip-offs.

For a start: the solar Feed-in-Tariff was set too high for too long (and then badly managed when the cut came).
But how did solar FiT payments benefit the poor? They didn't.
Substantial companies sprung up to exploit the over-generous FiT by rolling-out vast rent-a-roof schemes to earn the FiT payments. Entrepreneurs built large arrays to milk the excessive FiT rates - no need to work; just sitting back and watching the sun come up each day.
Before the FiT cuts the middle class bought panels for their roof to earn a good rate from the FiT; not many cared much about the bill savings, which were a small bonus compared to the generous subsidy paid by the poor.
Those who were unable to install solar panels (most likely due to the high upfront cost) are the ones footing the bill and the middle and upper classes are profiting from it.

Is that fair? I'd say it was less fair than the 5% profit margins of the utility companies.

 

[Worcester]

I though the interesting comments where when asked how the should keep the costs of ECO down they went on about ensuring only those entitled to it would get it - nothing at all about the value for money that was given and how the costs of eco could be brought down - they kept referring back to making sure only those entitled got it, and they needed more help from HMRC to check that entitlement...

As to how the ECO was accounted for, even more interesting when BG / Centrica where pushed about total profits thorugh the BG business, they kept saying that the profits from the service division where irrelevant and shouldn't be taken into account - yet the underlying message was that a shed load of highly profitable ' over charged (by BG services) eco work and other stuff was done by the service company and charged back to the energy division. - Just hope they really picked up on that as it really does start to force them to open up their books and internal accounting.

 

[FB.]

-
Centrica's (British Gas) operating profits (pre-interest charges, pre-tax) by division:

Electricity generation: £311m (11%)
Gas production: £919m (34%)
Gas storage: £89m (3%)
Transmission: n/a
Retail energy supply: £606m (22%)
Business energy supply: £175m (6%)
Energy Related Services: £312m (11%)
N.American operations: £331m (12%)

 

[FB.]

In Centrica's last set of results, they said:

For a 2012 average gas and electricity bill of £1,188* the costs are:
External Costs
Wholesale energy costs		£568
Delivery to your home		£283
Environmental and social policies		£112
Taxes		£72
Our costs
Operating costs		£104
Our profit		£49

 

[FB.]

Centrica's pre-interest, pre-tax operating margins of relevance to consumers, 2012 and 2011:

Retail energy supply: 6.6% (6.9%)
Business energy supply: 5.7% (6.8%)
Energy Related Services: 18.6% (16.4%)

 

[Darkwood]

Well, if the companies only make a profit margin of 5%, then that is the MAXIMUM cut which could happen. So even if the companies operated on a not-for-profit basis (or were state-owned with no competition - which tends to encourage bureaucracy rather than innovation; I've worked in healthcare and the number of middle-managers is outrageous) then a £1500 annual bill could be trimmed by £75.

That's it. £75 off a £1500 bill is the best that could be achieved even if the government takes ownership of the companies and - despite its already eye-watering debts - tries to borrow the vast sums needed to build new power stations and keep the grid functioning.

It's a mountain out of a molehill. There are many easier ways to make people's cost of living more affordable than bashing the low-profit-margin gas and electricity companies. But while everyone is hysterical about them it takes attention away from all the other rip-offs.

I have no argument regarding the other big profit companies, tax payments etc but this isn't what this thread is about thats for another debate altogether, but you seem to just be preaching what excuses the big 6 keep spouting yet under scrutiny the cracks are appearing, OVO gave them a massive blow in expressing the way the calculate energy costs in advance yet when they evidently over estimate they don't reduce costs to suit, OVO's representative also was totally transparent about the wholesale costs which have been pretty much level the last three years (you can research and check this quite easily) yet every year the big six have maintained the wholesale price has gone up and up - NOT TRUE!... they were directly questioned regarding the rises with some very tough questions they didn't expect and lets just say they all gave smokescreen answers or totally evaded a direct answer.

The charges and green taxes etc are all passed directly to the consume they were actually questioned on how they represent 5% as been there profit and it starting to look like the numbers don't match they are playing very clever deceptive figures that mask true profit and now big cracks are opening up in their reasoning ... this should insight others to dig deeper ..if they were so confident and truthful why dont they open their books and be transparent ... don't let the excuses brainwash you that's what they want .... when a country is outpricing the poor and elderly on the consumer energy market then their is something deeply wrong especially when massive bonuses are been handed out like confetti.

Everyone should have affordable energy, yes failure by both previous governments and energy suppliers to re-invest in the infra structure has had a big hand in this but when we are in this situe we are then changes need to be made about how we get, generate and supply the end user.

We are sitting on the biggest bounty of shale gas anyone could ever have imagined and even tapping 10% would give 50 yrs of supplies the rumours are that the scaremongering about fracking is been generated from within the big 6 .... imagine a new source of cheap gas with long term stocks under our feet would do to the big six shareholders and profit margins.... its already had a large effect in America and brought Energy costs down dramatically. Any argument can be made to look one sided when you tailor the answers to question you expect the thing is in front of the committee today the big see were showing their true colours.

 

[Gavin A]

We are sitting on the biggest bounty of shale gas anyone could ever have imagined and even tapping 10% would give 50 yrs of supplies the rumours are that the scaremongering about fracking is been generated from within the big 6 .... imagine a new source of cheap gas with long term stocks under our feet would do to the big six shareholders and profit margins.... its already had a large effect in America and brought Energy costs down dramatically. Any argument can be made to look one sided when you tailor the answers to question you expect the thing is in front of the committee today the big see were showing their true colours.

The US and UK gas markets are completely different to each other, there's absolutely not chance that fracking will impact UK gas prices in the same way it did in the US for the very simply reason that the UK is effectively a gas hub capable of exporting huge volumes of gas to the rest of Europe, whereas the US had almost no gas export capacity at all.

When shale gas delivered a glut of gas in the US there was nowhere to absorb that extra gas until the price was low enough to undercut coal for power generation because the gas couldn't be exported.

In the UK any shale gas produced effectively just feeds in to the entire European gas market, so will have a relatively negligible impact on price, though it may well help to slow the rate of price rises to some degree if it can be produced cheaper than LNG.

The US gas price is likely to rise again fairly rapidly in a couple of years time when they get LNG gas exporting facilities on line and start exporting. Unless they impose export controls, the price will probably pretty much equalise with European gas prices minus the costs of LNG compression and transport.

 

[jason121]

Will the Govt slash the FIT due to the rise in energy prices ???

 

[Darkwood]

The US and UK gas markets are completely different to each other, there's absolutely not chance that fracking will impact UK gas prices in the same way it did in the US for the very simply reason that the UK is effectively a gas hub capable of exporting huge volumes of gas to the rest of Europe, whereas the US had almost no gas export capacity at all.

When shale gas delivered a glut of gas in the US there was nowhere to absorb that extra gas until the price was low enough to undercut coal for power generation because the gas couldn't be exported.

In the UK any shale gas produced effectively just feeds in to the entire European gas market, so will have a relatively negligible impact on price, though it may well help to slow the rate of price rises to some degree if it can be produced cheaper than LNG.

The US gas price is likely to rise again fairly rapidly in a couple of years time when they get LNG gas exporting facilities on line and start exporting. Unless they impose export controls, the price will probably pretty much equalise with European gas prices minus the costs of LNG compression and transport.

Fair point about the difference in the US and UK markets but either way ive watched the grilling by the Energy and Climate change Committee .... and its hard to see the Big six are playing a fair game ... OVO's seated member has dealt some massive blows against the big six and they really couldn't respond... hmmm strange how shareholder companies can't provide a transparent open account of when they purchased and how much for yet a non shareholder company is happy to offer all their accounts up and follows up with a blowing comment on how the big six are manipulating the prices... again no comments but some very sheepish looks. As i have already said before this grilling the 5% they claim to make is smoke screened clever manipulation of the sums and there explanations for them in the light of yesterdays questioning committee are showing the sums don't quite add up.

 

[Badged01]

Just to add my two pennies worth to all this debate! Energy companies are there to make a profit and are not the slightest bit interested in the end user regardless of all the bullsh*t they spout out about customer satisfaction! If they are making their profit margin to satisfy the shareholders then they are happy, and if the customer is happy thats a bonus. If they arent making their margin then prices will only go one way ....... they hold the monopoly, if you dont like it go elsewhere for your energy! Ooops, you cant, there isnt anyone else .....

 

[Darkwood]

Strange how the non shareholder companies have kept their prices pretty much stable the last few years yet the big 6 who have to answer to their shareholders have bleated rising wholesale costs etc .... you'd think a small independent energy supplier would also have to pass on these costs.... Oh wait! they have shown the wholesale price over the last few years has been generally stable and they even have shown this to be so... The minute you float a company on the stock market it becomes all about profit and seeing how hard you can push the customer before they break...

 

[FB.]

The minute you float a company on the stock market it becomes all about profit and seeing how hard you can push the customer before they break...

It also becomes about being as efficient as possible to maximise profits. Unfortunately, anything run by the government is plagued by large numbers of (expensive) middle managers and high union membership which makes it difficult to control costs.
I have no doubt at all that the utilities back in government ownership would result in even higher prices due to lack of any need to innovate or be efficient (unless the government subsidised it, but a subsidy still has to be paid by someone else's taxes). I worked for the government for two decades and the bureaucracy was a major reason why I left: I spent a lot of my day filling out paperwork to satisfy all the middle-manager-audits rather than getting any work done.

Also note that "the big six" are the ones having to carry the bulk of the cost of green levies and subsidies.

 

[FB.]

The minute you float a company on the stock market it becomes all about profit and seeing how hard you can push the customer before they break...

But a privately-owned business is not much different: it effectively just has one or two shareholders (its owner or joint owners).
Should we cap the allowed profit margin of all businesses? I think offering cheap solar to people is desirable, so why not have a zero profit margin applied on all installers so consumers can get a good deal to help with their energy costs?
As I said earlier: don't try impose on others' businesses what you wouldn't want imposed on your own company, because sooner or later the price-controls will come for you too.

 

[Ian-LS]

I'm assuming that was a rhetorical question about installers having zero profit margin?

 

[Darkwood]

But a privately-owned business is not much different: it effectively just has one or two shareholders (its owner or joint owners).
Should we cap the allowed profit margin of all businesses? I think offering cheap solar to people is desirable, so why not have a zero profit margin applied on all installers so consumers can get a good deal to help with their energy costs?
As I said earlier: don't try impose on others' businesses what you wouldn't want imposed on your own company, because sooner or later the price-controls will come for you too.

When the company is floated and becomes the domain of the shareholders it effectively becomes a profit driven empire as multiple shareholders are in it for one thing and one thing only and thats to make good returns on their investment.... this usually means any voted decision isn't based around the original ethics of the company but gets blind sided to put profit first then anything else second.... a business like my own and many others have a different kind of customer relation in that they come first and your profits usually are a consequence of your good business nature... i totally disagree with you regarding your comparison of the Energy market with a standard business model.... affordable energy is as essential to the consumer as water and food thus this put the energy market in a unique position where they must provide affordable energy .... you keep quoting 5% profit margin yet this is only because the big 6 say this is what they make but when you start to break down how they arrive at this then you see just how sneaky and colluding they are OVO have seen wholesale costs fall recently and provided the proof yet the big 6 say they are rising yet accessible evidence contradicts them.. strange how the big 6 are all singing the same song yet the smaller companies are been transparent and showing the cracks in the big 6 claims... also if they were so confident in their accounting and claims then why didn't 5 of the 6 bosses even turn up and instead send their monkeys in to take the heat. I understand your angle on the business issue but these giants and in a very unusual position of actually generating the Energy and selling it to themselves to pass on the customer... this can't be right in any market its too easy to manipulate figure - put smoke screens up and hide true profit, this is why we are seeing all these rises that totally contradict market trends and wholesale prices.

May i ask why your so defensive of the big 6 .. im starting to think your either brainwashed by all their claims or you have a vested interest i.e. a shareholder yourself?

 

[FB.]

May i ask why your so defensive of the big 6 .. im starting to think your either brainwashed by all their claims or you have a vested interest i.e. a shareholder yourself?

Yes, I hold shares in SSE and Centrica (and National Grid); I am a professional investor who gave up the bureaucracy and stuck-in-their-old-inefficient-ways government job to trade financial markets from home, which is why I pop up on here at various times of day.
But I also hold shares in a variety of other companies - at the moment my largest shareholding is Sainsbury's which I picked up in late 2011's market panic for a silly low price and am now awaiting my chance to cash-out at a good price, but my largest holding varies from time to time.
Pension funds and managed investment funds (of the sort which you might have in your ISA or endowment) also hold such investments - and you will have holdings of those companies if you have a FTSE tracker fund.

Actually my very largest holding - more than twice the size of my Sainsbury shareholding and four times my SSE/Centrica holding - is gold which I've been loading-up with in the recent gold-price slump because I think Quantitative Easing is causing all kinds of economic distortions (including rising commodity prices which are part of the gas/electric price rise) which will eventually snap back like a financial earthquake when governments and central banks can no longer hold things together. From dotcom boom-bust in 2000, to housing boom-bust in 2007, to QE boom and probably soon QE-bust.

 

[FB.]

May i ask why your so defensive of the big 6 .. im starting to think your either brainwashed by all their claims or you have a vested interest i.e. a shareholder yourself?

I am defensive of them because I vigorously defend everyone's right to make a fair profit from their business. If this conversation was about the profit margin charged by a solar panel manufacturer I would be equally defensive of their right to make a fair profit.

Without a fair profit, there is no incentive to increase efficiency (which would increase profits and/or bring costs down for consumers). Without a fair profit there is no incentive to invest (which maintains or increases the supply of what we want).

Capitalism works because the profit it allows encourages businesses to compete, to become lean-and-mean and to innovate - and if something is too profitable it encourages newcomers to enter the market (as was the case with solar PV companies springing up in 2011).
Without a profit reward the pharmaceutical companies would not bother to develop new medicines (disclaimer: I hold shares in AstraZeneca and GlaxoSmithKline) and without new medicines healthcare would not advance. Similarly: without a profit a solar panel manufacturer would not be encouraged to advance solar technology to the next level.

If we take away free market pricing, we end up with communism - and we all know where that ends.

But I expect Miliband will get into power at the next election and spank the utility companies so hard that they never forget it. But also the investors this nation needs - including those who lend to the much-needed deficit money to the government - will also not forget, and very likely there would be a rapid and severe slump in the British Pound (and soaring import prices which encourage Red Ed to "fix" even more prices) as investors' money hurries to other nations.
Even Tony Blair criticised Red Ed's price-capping; Blair knows how "anti-business" it would sound.

 

[Darkwood]

Explains alot; you were talking about the big six s though you had blinkers on even with all the recent drama where they now seem to be sitting on shakey ground and not a fracking in sight to blame, but yes i see now that its in your interest to counter any negative talk or speculation as this will have a direct effect on the share value of your shares in SSE .....

I very much doubt then that i could get you into any kind of agreement with me as you kinda have vested interests to protect your money so on that note we will just have to agree to disagree...

OVO has done the country a good deed as i said earlier they are a small independent company and still believe their customers come before profit hence they challenged and even explained how the big six are hiding the truth... No comment was given in response which says alot!

Im no expert on the stocks and shares but i can see consumer pressure and all the generated attention been the downfall of the big six if they don't change their ways and the consequence of been open and transparent will affect profit massively hence shares will plummet --- its a one way road now they have let the shareholders push big profits ahead of consumers needs now they are been exposed... clever accounting and smokescreens are been exposed and they have no answers...


When people die to protect and push shares up then morality of the shareholders needs questioning ... corporate manslaughter wouldn't be far off in my mind... ill agree with you regarding other floated companies - yes business is business but when lives depend on fair play then yes the industry needs over hauling when it goes wrong as it clearly has.

Im not against shareholders and business practices as such just some markets should be under strict control and yes even if it means the government stepping in and stripping it all apart - they may not be the best people to run it but the big 6 has shown greed is worth more than life.