The 'Big Six' Energy Cartel

[holepuncture]

What are your thoughts on the goings on surrounding our utility companies?

 

It seems to me that they are intent on repeatedly putting up prices, whilst repeatedly declaring record breaking profits (which they would have tried to keep at an absolute minimum too).

 

Politics is now at the core of the debate, and it seems they are intent on putting up prices with or without Red Eds proposed price freezes.

 

'Big Six' firms are threatening rising prices to deal with green levies, rising prices to combat Millibands scheme, or refusing to invest in basic infrastructure if Ed gets his way. Not a very cooperative approach and not great corporate communications to your customer base IMO.

 

I read yesterday of a CEO from a smaller provider, claiming the 'Big Six' are blaming the rising costs of the wholesale energy market, yet the price increases are six times above and beyond the increase in wholesale prices. A similar arguement stands for the 'green taxes'.

 

I read that of the 'Big Six' that were summoned to parliament to explain their increases, only one sent a senior leader/director, the rest sent technical staff with a brief to baffle and confuse MPs and to muddy the debate.

 

Are they a cartel?

 

Are they maintaining an oligopoly?

 

Are they blackmailing our goverment and society?

 

Are you considering taking action, such as going to a smaller provider?

 

Personally, I believe they are out of control, and a big part of me feels compelled to back Ed Milliband in his freeze proposal, even if it fails, somebody has to try and get a grip on something which is such a fundamental part of society (Call me Dave probably laughs about this kind of thing in the back of his mind!).

[stevegrant]

The problem with going to a smaller provider is that, in general, they won't be as competitive on price because they can't get the same deal on wholesale.

 

I'm with EON (largely forced on me as they run an on-site energy centre at my place which provides the heating to my flat), but they've largely been pretty good since I moved here. I've even managed to buck the trend of escalating energy bills by reducing my annual electricity bill by a whopping £14 next year

[bridge too far]

It does seem that they're operating a cartel, doesn't it. You're right, something needs to be done NOW - not to wait for a review / commission / whatever that will take months.

 

I listened to the director of the small company (Ovo?). He said prices had actually dropped on the wholesale market! It does seem quite odd, too, that most of them sell the wholesale energy to themselves. I don't think there's the transparency to show how much profit they make from such deals.

 

The green taxes, most of which were introduced by the current government, should be maintained IMO because we have to future-proof but why can't the government reverse the VAT charge, introduced by Norman Lamont way back? That would be a huge immediate saving for us all.

[badgerx16]

'Call me Dave' blaming 'green taxes' is a sop to the nimby readership of the Daily Mail / Express. Renewables will always operate at a disadvantage in the current economic environment as start-up and infrastructure costs penalise development. I find it puzzling that UK Government is talking about cutting this 'taxpayer subsidy' yet our nuclear program is about to get a boost that is almost entirely funded from French and Chinese Government coffers.

[bridge too far]

'Call me Dave' blaming 'green taxes' is a sop to the nimby readership of the Daily Mail / Express. Renewables will always operate at a disadvantage in the current economic environment as start-up and infrastructure costs penalise development. I find it puzzling that UK Government is talking about cutting this 'taxpayer subsidy' yet our nuclear program is about to get a boost that is almost entirely funded from French and Chinese Government coffers.

 

Something else that puzzles me is this. Cameron hit out at Miliband for saying he'd freeze prices and yet, in the same week, the government has contracted with EDF to fix the prices once the nuclear facility comes on stream. Double speak? Or am I missing something?

[badgerx16]

Something else that puzzles me is this. Cameron hit out at Miliband for saying he'd freeze prices and yet, in the same week, the government has contracted with EDF to fix the prices once the nuclear facility comes on stream. Double speak? Or am I missing something?

 

One is 'Red Ed' threatening central Government interference in a free market by controlling prices, the other is the Prime Minister acting in the national interest to secure our energy future by controlling prices.

[Smirking_Saint]

The whole Freezing prices crap is probably one thing that has helped to push prices upwards, that and it completely decimated my shares for a little while. All in all though is its completely impossible to implement without the risk of blackouts. We take the majority of our fuel from the continent and so if we freeze prices we will not be able to buy it, therefore we will be forced to use what we generate ourselves which all in all means we will be short.

 

Its an empty policy that rides on the back of popular opinion and is in itself, Id imagine, completely unenforceable.

 

As per rising prices, the suppliers only receive 5% of that supply, the rest is made up of wholesale price, tax and government legislation towards green energy. The majority of this is the building of wind farms which are largely unefficient beasts but the government still ensures they are paid for their energy geberation even when they are turned off or not producing at max.

 

The main issue IMO is government policy on generation, shutting down plenty of generating stations without any replacements. This ensures that we are buying in bulk from markets that overproduce, thus increasing our own prices. Fact is, the old energy minister from labours days has effectively caused this issue, whoever he was...

[ecuk268]

So let me get this right about the new Nuclear Power stations.

 

We've guaranteed double the current rate to a state-owned company from a country with a socialist government backed by money from a communist country. So, presumably, any profits will go back to France.

 

Is this how the free market in energy is supposed to work?

[Micky]

They are thieving gits, who are in bed with the Government. Once again joe public is the loser.

[Pugwash]

The looming global energy crisis has been known about for over 40 years among governments, scientists, engineers and energy providers. In the 1960's, this decade and the next were identified as the 'crunch time' when the then-known oil and gas reserves would begin to run out, resulting in price hikes and energy wars. Whilst new oil and gas resources are being found, the rate at which these are discovered is falling and they are becoming more difficult and expensive to extract.

 

Successive governments, the media and the public have all buried their heads in the sand over this issue, ignoring expert advice, all because they didn't want to be the bearers of bad news or didn't want to hear it. Well, sorry folks, but the crunch is here now and the decision to go nuclear is 20 years too late. There is too little generating capacity in the grid and the situation will get worse. Expect the next 15-20 years to be a rough ride.

[View From The Top]

We are an Island of coal yet we are ****ed for energy whilst the PLC's rake the ££ for their City shareholders.

 

To overcome that we guaranteed double the rate (so much for a free market) to a foreign company that is using Chinese money.

 

That'll be privatised energy for you.

[Sheaf Saint]

The thing is, I wouldn't mind paying a little extra for my electricity if I knew that the energy firms were using the extra capital to invest in renewables and more efficient methods of power generation. But they clearly aren't.

 

Last night I attended a fascinating talk at Sheffield University by the authors of a new book called Project Sunshine, which looks not only at the scientific aspect of ending our dependence on fossil fuels but also at the historical, political and economic factors which have led us to where we are now. Their main argument was that the technology exists already to move away from a coal/oil/gas based infrastructure, but the political will and economic conditions do not. Everything is all about the short term - the energy giants only care about making quick returns for their shareholders, and governments only give a damn about winning the next election.

 

Quite simply, as long as the global free-market economy exists in its current guise, we will continue to get shafted in the short term, by way of profiteering from the multinational corporations that hold all the power, and screwed in the long term due to the lack of investment in technologies that will free us from the volatility of the global energy market.

 

Pugwash is quite correct. The situation is only going to get a lot worse before it gets better.

[Smirking_Saint]

The thing is, I wouldn't mind paying a little extra for my electricity if I knew that the energy firms were using the extra capital to invest in renewables and more efficient methods of power generation. But they clearly aren't

 

We arent expected to, that extra cash goes back to the government for them to fund projects such as Biomass etc

 

In fact every price review the network operators which does include EDF and SSE from the big six will lay out plans for network reinforcement and maintenance in order to help create a more resiliant network and the government awards us a budget for precisely that. (Which is basically what I do in the capital investment arm)

 

The generation side works differently but basically speaking the government has to provide those wishing to invest in generation a return on that investment in the form of guaranteed prices for their generated MWh's. Its a guess really but they obviously try to anticipate price rises in an attempt to slow them.

[holepuncture]

It does seem that they're operating a cartel, doesn't it. You're right, something needs to be done NOW - not to wait for a review / commission / whatever that will take months.

 

I listened to the director of the small company (Ovo?).

 

Yes, Stephen Fitzpatrick Managing Director at Ovo Energy, I would like him to elaborate further on the behaviour of the big six.

 

Expect the next 15-20 years to be a rough ride.

 

 

We are an Island of coal yet we are ****ed for energy whilst the PLC's rake the ££ for their City shareholders.

 

To overcome that we guaranteed double the rate (so much for a free market) to a foreign company that is using Chinese money.

 

That'll be privatised energy for you.

 

Uncle Dave might be looking at a future directorship perhaps? Tony Blair middle east envoy FFS

 

Pugwash is quite correct. The situation is only going to get a lot worse before it gets better.

 

The masses will revolt perhaps, the tolerant Brits will grow a spine eventually, when they get too cold and hungry! For these 2%ers mucking around with the populations money and energy, its all good and well creaming off the bottom line, artificially inflating your shareholding. But none of that will protect you when the masses turn vigilante on your ar*e, holding you responsible, that shareholding will not be much use to them when somebody is seizing their car as compo.

 

Perhaps.

 

I reckon if geeky Red Ed wages war on the utility companies, it could well be an election winner IMO

[TopGun]

For me working in the industry with generators, the answer is simple. Set up a state administered non-profit People's Utility which would compete with the existing privatised energy retailers. If there is a cartel, such a move would break it apart. Also a People's Utility would be able to generate or purchase wholesale electricity from mothballed gas-fired plants so the capacity is there to do so.

[bridge too far]

Hey Top Gun - did you see this article on the BBC website?

 

http://www.bbc.co.uk/news/world-europe-24763311

 

Seems like the Germans are thinking about (re)nationalisation of their energy supply.

[OldNick]

Hey Top Gun - did you see this article on the BBC website?

 

http://www.bbc.co.uk/news/world-europe-24763311

 

Seems like the Germans are thinking about (re)nationalisation of their energy supply.

reading that,it seems that the ridding of nuclear has made them more reliant on coal fired stations. It is ridiculous. I can't see wind farms and renewables generating the required power we need. It is great being green when you are not having power cuts and effecting our lifestyles but when we start getting the blackouts peoples minds will quickly change

[OldNick]

Hey Top Gun - did you see this article on the BBC website?

 

http://www.bbc.co.uk/news/world-europe-24763311

 

Seems like the Germans are thinking about (re)nationalisation of their energy supply.

reading that,it seems that the ridding of nuclear has made them more reliant on coal fired stations. It is ridiculous. I can't see wind farms and renewables generating the required power we need. It is great being green when you are not having power cuts and effecting our lifestyles but when we start getting the blackouts peoples minds will quickly change

[bridge too far]

http://www.theguardian.com/money/2013/nov/03/energy-bills-npower-400m-credit-customers

[holepuncture]

http://www.theguardian.com/money/2013/nov/03/energy-bills-npower-400m-credit-customers

 

Seems pretty standard no, just a build up of customer direct debits?

 

Does anyone have any experience of any smaller suppliers? Ecotricity seem to be quite confident that you wont pay much more than the major cartels, though online reviews (most around a year old), suggest you will pay a bit more.

 

http://www.ecotricity.co.uk/about-ecotricity

 

With no shareholders, this not-for-profit enterprise sounds attractive (plus that green moral high ground).

[CB Saint]

Seems pretty standard no, just a build up of customer direct debits?

 

Does anyone have any experience of any smaller suppliers? Ecotricity seem to be quite confident that you wont pay much more than the major cartels, though online reviews (most around a year old), suggest you will pay a bit more.

 

http://www.ecotricity.co.uk/about-ecotricity

 

With no shareholders, this not-for-profit enterprise sounds attractive (plus that green moral high ground).

 

Exactly. Over the summer months you build up a pool of cash to offset the increased charges in the winter. 400M divided by 3.7m customers is just over £100 per head. That doesn't seem unreasonable.

[Sheaf Saint]

reading that,it seems that the ridding of nuclear has made them more reliant on coal fired stations. It is ridiculous. I can't see wind farms and renewables generating the required power we need. It is great being green when you are not having power cuts and effecting our lifestyles but when we start getting the blackouts peoples minds will quickly change

 

Actually, Germany generates more electricity from solar than any other country in the world, and although their own photovoltaic manufacturing industry has taken a massive hit from foreign competitors, they are still on schedule to hit their target of producing 35% of all electricity from renewables by 2020.

[Lord Duckhunter]

Actually, Germany generates more electricity from solar than any other country in the world, and although their own photovoltaic manufacturing industry has taken a massive hit from foreign competitors, they are still on schedule to hit their target of producing 35% of all electricity from renewables by 2020.

 

And their retail energy prices are much higher than the UK's.

[trousers]

[suewhistle]

I've covered my bets on this one. On the roof I've got the recently installed solar panels [10kWh generated yesterday], been up in the roof these last few days improving the insulation and I've got a very healthy PEP of SSE shares. The thing about the latter is that although the price has been hit by recent events I'm not complaining, as I do feel regulatory control has been lax and there is a lack of transparency over transfer pricing. But I would say, don't complain about the "city shareholders". I didn't agree with privatisation, but as I was in the industry and directly affected I bought shares and KEPT THEM long term. So many people cashed in for a quick profit, which just about sums up our industrial policy in this country.

 

As for the recent announcement on nuclear power: use foreign capital and expertise and then guarantee them a generous return! We still haven't worked out how and who is going to decommission the old nuclear plant, but the profits have accrued privately and the decommissioning costs remain with the taxpayer.

 

In the meantime, every unit I generate on my roof is a tiny bit of fuel that doesn't have to be imported, thus helping the balance of payments.

[saintbletch]

 

Interesting comparison that on first glance looks astonishing.

 

However, I'd like to know....

 

1) The split between gas and electricity usage in those countries (if a country "typically" uses electric power, the lack of an economy of scale for a gas provider might mean that gas prices stay high.)

2) The delta between gas and electricity prices in those counties (if a country has far cheaper electricity, they won't use gas and therefore the price will not reflect what consumers HAVE to pay to cook/heat/etc.)

3) Whether the weather in those countries impacts the cost - I note that 3 of the top 4 countries are likely to have quite mild winters meaning potentially lower, overall cost (again, this might impact economies of scale).

4) What proportion of those gas suppliers are both energy generators and retail sellers. (do they, to an extent control both their purchase cost and selling price).

5) The proportion that taxation makes up cost in each of those countries

6) State versus private ownership of energy generators in the respective countries (subsidised, non-profit driven production versus lazy, state-run monopoly)

7) The number of gas providers in each country

eight) Average, total annual spend on gas in each country (given some of the factors above, Greece may still have a far lower annual cost versus other countries)

 

Either way, it's still surprising to see the UK in that relative position.

 

Don't worry about getting an answer on each of those today trousers my man, tomorrow will be fine!

[saintbletch]

As to the OP, and the question of whether they operate a cartel, given the scrutiny they are under I can't believe they would be formally fixing prices between them, but I am struck by the lack of real competition.

 

Why doesn't one of the big six take two-three years of lower profits (in percentage terms) to gain market share that would hurt their competitors and increases their profits (in absolute terms)?

 

That's what would happen in other, supposedly highly competitive markets.

 

I watched some of the coverage of the select committee where the Big 6 and others were "grilled". I could not believe how helpful they were to each other; completing each other's arguments, emphasising points already made by other companies. Not one of the Big 6 used it as a means to try to differentiate themselves. The only one that did was the bloke from the small provider - Ovo I think.

 

Is it just that the claimed 4-5% RETAIL profit margins simply won't allow for enough of a reduction in the bill?

 

Is it that we are lazy and don't switch suppliers unless there is a significant reduction?

 

Perhaps, but where these companies are both generators/producers and retail suppliers, they have all the tools at their disposal to take an end-to-end view of their profits (production and retail sales) and then significantly undercut their competitors. The margin for an end-to-end supplier is significantly more than 4-5% and would allow for significant price reductions.

 

Then many of us would switch suppliers and that would be good for the supplier that decided to undercut their rivals. But then of course the other companies would each lower their prices to convince us to stay with them, and a price war is not good for any of them.

 

So, a cartel? No, not formally.

 

But a cartel due to the barrier to entry for new suppliers? Yes, absolutely.