The rise of the bills: the great energy rip-off at a glance


The graph below shows the price of wholesale gas (the price energy companies buy it for) and retail gas prices (the price the customer pays).

gas pricesOne of the first things you will probably notice is how rarely the retail price of gas has gone down even when the wholesale price has come down.

There are complicating factors of course. When buying wholesale gas and electricity, energy suppliers employ hedging strategies (spreading the costs to consumers across a long period of time instead of passing on costs and savings).

This should mean that bills average out in the longer term, giving consumers a retail price that’s reflective of the state of the wholesale market.

And yet it doesn’t feel like that.

British Gas put up prices by 6% last year, despite the level of profit the company was already making (see bar graph below) – because “external costs were growing“.

Commenting on the latest anticipated price rise, shadow energy secretary Caroline Flint said: ‘Only a few months ago they [British Gas] decided to put prices up, event though their profits have gone up extremely well in the last year.’

We don’t see the reverse happening,’ she said, before calling for the introduction of a tough regulator to ensure that savings in wholesale gas prices were passed on to customers.

heating

profits british gas

British Gas, the rise of the bills
Source: USwitch

Date

Annual Bill Size

Jan 2004

£543

Jan 2005

£642

Jan 2006

£735

Jan 2007

£1,002

Jan 2008

£821

Jan 2009

£1,176

Jan 2010

£1,066

Jan 2011

£1,100

Jan 2012*

£1,260

Jan 2013

£1,336

 

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  • hesedshesed

    The energy companies will always have an excuse to explain all this. They produce impenetrable profit figures that reflect a myriad of overlapping businesses, costs and revenues so that no one is able to decipher them.

    They now produce a ‘profit per customer’ figure that they use to pacify the criticism when their profits rise by same amount as they have increased bills. The figure is, of course, completely opaque and beyond expert, never mind journalistic, scrutiny.

    Many energy suppliers also generate energy for the wholesale market, on which they presumably makes vast profits when wholesale prices rise. Most of the Big Six do this and they all sell to one another.

    They say their retail arms have to make a profit in their own right in order to continue to supply energy, but who exactly do they think they would sell their energy to if the retail arms did not exist? The retail arms facilitate the far larger profits of the generation arms.

    They moan that there is hardly any profit in retail energy, which begs the question – ‘why do they do it?’ I think the answer is that they have to if they are to make the huge profits on generation so the defence of retail price rises on the grounds that the profit margin has to be maintained is disingenuous.

    It is very unlikely that energy prices are as low as they could be because we know that customers are not switching to reward price competition. About 75 per cent of people are on standard tariffs and I refuse to believe that is because they all want to get a paper bill each quarter. Either they have not switched or they have been hoodwinked by sales staff at some point in the past – they may have switched, but only to another standard tariff.

    If you believe in the power of free markets to produce consumer benefits at all then you must agree that the lack of customer movement in the energy market means prices are not as low as they would be if people switched more readily.

  • LB

    So lets see. The alternative?

    Hmmm electrictiy. Woops. Too expensive. We’ve got to pay the Cronies their cut for stupid green power.

    Coal? Woops, no mines left, no infrastructure, and in large parts of the country, you can’t use coal because its been banned.

    Imagine that. Politicians rig the market and then complain about the outcome.

  • Newsbot9

    Keep on ignoring nuclear power, because it would mean you indeed didn’t make your cash. You’re a good politician.

  • Newsbot9

    Indeed. I’ve been outright lied to by sales staff multiple times about tariffs.

    But switching is a side-issue. Many people can’t anyway because of their landlords, and it’s simply moving around to try and avoid the latest increase.

  • Jack Johnson

    Ed said we need tougher regulation,I suppose he means like the regulation of pay day
    loans? It’s all limp wristed bollocks, what is needed to stop the energy rip-off is re-taking
    the industry back into public ownership. Then controling prices for the consumer and
    boosting manufacturing industry by fair prices.