If only I had the Energy

If you think switching to a different energy supplier is going to solve the problem of piss-taking profiteering by our crooked energy companies, you're quite wrong. All it's doing is creating a 'commission' opportunity for organisations like 'uswitch' and 'gocompare' against a back-drop of all of the energy suppliers raising prices, maximising their profits and essentially ripping us all off for the heating and power that we cannot comfortably live without.

What switching also does is lock you in to a tariff, like a fixed rate mortgage, so that if, as a guy at uswitch said to me earlier today; 'The Government pulls its finger out and does something about these high prices', might mean you're paying more than the 'going rate'. Yes you can get out of the contract but inevitably there will be a fee which will negate any immediate savings.  

I have been saying that Mr Davey & before him that nice upstanding Mr Huhne should do something about this ridiculously one-sided situation for three years now, so I'm not jumping on the Miliband wagon nor identifying a problem for the first time now that it is in the public domain. Energy prices are a massive problem for the UK and whilst Miliband does not, in my viw, have the right answer, he does, unlike Messrs Davey and Dave C (be honest?) he does at least have the right question: 

Anyway, maybe I should start from the beginning?

You've got to feel for these poor energy company Chief Executives. With wholesale energy prices going up and up all over the world and absolutely nothing that their parent companies, sorry the wholesale energy suppliers, can do about it, these poor guys are striving manfully to hold back price rises for us consumers.  It's getting to the point for some, like the top five senior executives at Centrica, that they're working so hard to keep prices down for us, that they hardly have time to spend the £16.4 million they received in pay & benefits for the last year. Indeed some of the poor bastards hadn't even yet had the time to spend their share of the £15 million they received the year before.  

They're doing everything they can. Almost single-handedly they're trying to hold back the tide so that our energy bills don't go up any more than they absolutely have to. They're also holding off on introducing price rises for as long as possible. These people are heroes. Clearly. We should be recognising their efforts in some way.

Time after time you hear them say how much they understand about high prices affecting household budgets. If you listen carefully you can almost hear a catch in their voices as they get overly emotional about it. These are truly people who understand. Who are on our side. Can't we arrange for them to get paid more than the frankly paltry £4.9 million received by Centrica CEO Sam Laidlaw last year?

Without these heroes we would be at the mercy of disreputable villains who would be using all kinds of subterfuge and deceit in order to trick us into paying more for a commodity that is extremely ineleastic in terms of demand (the price goes up, consumption doesn't fall very much because we cannot do without it). And that situation would be terrible. Imagine being at the mercy of crooks who could essentially charge us what they want for our gas and electricity? It would be madness.

Thank goodness we have an energy regulator in the form of ofgem to make sure consumers' interests come first and foremost and also, in the the Department for Energy and Climate Change, we have a government department that is also there to ensure we are not ripped off.

I have just the one small, almost inconsequential gripe about all this legislative protection we receive and all this striving for lower prices that is being done on our behalf by these unsung heroes. Minor to the point of insignificance. You'd probably not even notice it unless you looked quite closely.


My problem is, to be frank, that none of the above is either true or effective.

Are these executives at the big six suppliers of energy to the consumer really trying to keep prices down and for as long as possible? Are they fuck.

Is ofgem, which issues the operating licenses under which all gas and electricity companies must operate in the UK, really doing all it can, under its first principle of operation which is to put the consumer first, to keep prices down? Is it fuck.

Is the DECC doing all it can to help consumers and stop them being royally ripped off by these suppliers? Is it bollocks.

These companies claim that green tax subsidies (many of which apply to them so they receive these subsidies) are reasons for them to increase their prices. Erm so we have to pay more to subsidise their green operations (in order to make this fuckwit green windpower bollocks profitable even though it simply doesn't work by any realistic measure of efficiency or reliability) and for that privilege, they are also allowed to charge us more for our day-to-day power, erm so they can afford their investment in green operations? So we pay twice for this green bullshit?

The government claim that green taxes 'only' add about 11% to the average bill. Really? When these taxes are paying for the decommissioning of swathes of coal-fired power stations, subsidies to land-owners that would make a Rothschild wince, and operating subsidies including paying the wind-turbine operators to turn them off when the grid can't accept their power or when it's too windy? 11%? Are we sure about that? Does that include the benefits we have to pay for the 60-odd 'old energy' jobs that are lost for every single new green energy job created? We're also paying for the UK's biggest Drax power station to be converted to burn wood ('bio mass') instead of coal; wood that we're importing from Canadian forests. How green is that? Not very. Unless the massive freight ships being used are essentially giant pedaloes?

And the energy suppliers are saying that they're making a loss on energy transmission. That their profits in the consumer end of their businesses are only around 5% and that, poor things, they have to invest in new infrastructure in order to maintain supply. And they tell us, seemingly every year, that the price increases have to be (well) above inflation because they have to fund the investment in infrastructure. Shouldn't they be funding their investment in infrastructure out of the massive profits they make? Given that that infrastructure enables them to get their product to the consumer and thereby charge them handsomely and make those profits in the first place? Or are they just so used to it that they just assume we'll pay twice for it as we do for everything else they do these days?

Speaking of which, take a look at this (above) table. Yes it seems that the retail arms of these companies are making profits of (typically) less than 5% but you'll notice that their wholesale arms are making profits of over 20%. Now I'm not a bean-counter, but even I can tell you that you could, if your very highly paid CFO wanted to, put these profits into any area of the company you wanted, just a by a little - and perfectly legal - sleight of hand. So some of these companies are generating profits of over 20% on the energy they supply on a wholesale basis and then making profits of an additional 5% on that figure. So, again, we're paying twice. We're paying to give them an additional margin on the profit they're already charging us for.

These companies talk about 'world prices' going up, forcing them to put their prices up. Two things to note on this. First is that the media and the politicians seem just to accept this without any kind of investigation. 'World prices eh? Well nothing we can do about that, on you go guys.' These aren't world prices but the price fixing that's now possible because there are only 6 players and they are all both wholesale suppliers and retailers of energy. It's virtually a cartel that the government seems unable to stand up to.

The real 'world energy price' has only risen by 1.7% in the last 18 months as global demand weakens because of the global economic situation. So how can these companies justify 11% rises? They are taking the piss but sadly Ed Davey has been unable to act in the public's interest until the issue has become a crisis. And, sadly, until Mr Miliband raised the level of importance of energy prices at the Labour Party conference earlier this year.

Davey's job is to look out for the consumer when it comes to energy, all the time. Not just when he's forced to do so. The sooner he goes from office and we get a grown-up in place, the better. 

And ofgem knows all this - it must do surely? - and does the square route of fuck all about it. Consumers interests first? My arse.

 Here's a couple of recommendations put forward by a consultant to ofgem in 2011: Original house of commons report on energy company profits here.

And ofgem's response was to reject three out of five recommendations. Why? What possible damage could the provision and reporting of clearer information have done to the price being paid by the consumer? Or was there some kind of lobbying going on? Re item 4 above, how on earth could the supply of clear details about which elements of the organisations involved make the profits, compared with the risks involved, have done anything other than to clarify the fact that we're being ripped off by this financial subterfuge?

The fact is that these companies are there to make money for their shareholders. That is their primary concern - indeed until this morning when it changed its website, the SSE front page disclosed that the company has 'one strategic policy: to deliver sustained real dividend growth.'  The same could be said for them all, they're abut making money for their shareholders at the expense of a captive business and domestic audience whose protection is being provided (try not to laugh) by ofgem and DECC. More here - factcheck)

Let's look at these companies to get a quick measure of the cut of their jibs:

I've mentioned Centrica, UK-based and market leader, 14.8% profit margin on turnover of £12.3 billion (British Gas Trading Limited, year 2011) profits of almost £2 billion. And it's wholesale arm, Centrica averaged 7.3% profit between 2007 - 2011 on turnover of £22 billion. Dividend is up 5% year on year for 2012 and the company paid 75.5% of its profits before tax, to shareholders rather than investing in infrastructure.

French owned, UK turnover of around £15 billion; makes a loss on it's customer supply business but a very healthy profit on its generation business (it's just a matter of where you allocate the profit not necessarily an indication of who's paying for what, the consumer pays for everything these people do in the end). EDF paid 55% of its net income back to shareholders in 2012. Money it said it needed to invest in infrastructure? Leading the consortium which includes investment from China, in new UK nuclear power station at Hinkley Point in Somerset - DECC has given guarantees of future electricity prices (twice the current level and for 35 years - I wonder if Mr Davey ever fancies a game of poker?) in order to secure this investment. Not exactly going to help consumers then, what a surprise.

German shareholder-owned energy company, £16 billion UK turnover, profits of 7.2% (2011). Recently withdrew its 'Stay Warm' tariff for over 60s. Customers have automatically beeen moved to a more expensive tariff. Recently fined £1.7 million for overcharging customers for exit fees.

Spanish Iberdrola-owned energy company, £8 billion UK turnover, profits of 9% across the two elements of its business. Recently fined £8.5 million for misleading selling practices. Profits doubled between 2011 and 2012 (from £350m to £712m. The company also paid Iberdrola £890 million this year, again, when it should surely be spending this money on the infrastructure it so badly needs to invest in? Iberdrola, not surprisingly is struggling in many of its continental European markets and especially in Spain. Guess who's paying to bail them out, as usual?

npower, subsidiary of German RWE. £6.5 billion UK turnover, just increased prices by 11% (gas) and 9.3% electricity. Profit margin figures are opaque to say the least, I'm guessing that with 'renewables' you can offset just about every cent against losses or subsidies. However John Robertson MP (Lab Glasgow) who sits on the Energy Select Committee said, commenting on the npower prices rises and the Chief Exec's 'we feel your pain' bullshit (“I know that any increases to household bills are always unwelcome, and this is not a decision that we have taken lightly,”) said: “The CEO has come out all guns blazing, saying they only make 5 per cent profit. But he is trying to pull the wool over our eyes and make us forget about the shady shuffling of money around the company. Profits went up by 25 percent last year and it is clear Npower is simply taking advantage of customers and ripping them off.”

Finding myself agreeing with a Glasgow Labour MP as well as Caroline Flint and Owen Jones is a whole new experience for me I must say.

  

Perth-based formerly Scottish and Southern Energy, turnover of £28 billion, operating profit of £800 million. 'Sustained real dividend growth' and recently fined £10.5 million for prolonged and extensive miss-selling of contracts.

ofgem grants the licenses that allow these companies to operate in the UK energy market. And it's first principle is to protect the consumer. So what is it doing in light of the above facts?

Meters, clarity of information (yeah right) marketing practices (since so many are fined for miss-selling), notification of price changes and prevention of theft. So the square route of fuck all then. How will meters, smart, traditional or otherwise have any impact on prices? Telling us more clearly that we're being royally ripped off will not help us to pay the bills. Stopping miss-selling is fine but the whole fucking industry is currently miss-selling in that it is ripping us all off with the government's approval. And the only really important theft taht is occurring here is that of our money by these energy companies. ofgem is a fucking joke. But the only people laughing are the executives and shareholders of the energy companies.

And what is DECC doing? It's continuing to say that the UK must spend massively on green technology to reduce our CO2 emissions, when the rest of the world, including Germany, the US, Canada, Australia, Russia, China and India have turned away from this discredited scam. So we might eventually redce our CO2 emissions, which currently stand at 1.6% of the global total or, to put it another way, less than China's year-on-year increase in emissions. It's completely mad and will have absolutely no impact whatsoever on the planet, even if man-made global warming was real, which is isn't (more here if you're interested).

What Mr Davey is also doing is lining up stand-by diesel generators to come on-line to meet peak demand in the UK. So emergency generators that are owned and held in readiness for a power outage by organisations including supermarkets, major hotels, residential and office building complexes, distribution and storage facilities, hospitals(?), airports, are being connected up to the grid so that they can be called upon to meet peak demand when the wind isn't blowing (or is blowing to hard or in the wrong place). And the price paid to the owners of the generators will be massive, and sooner or later this practice will become the norm, the supermarkets et al will buy additional emergency generators for their own needs and will then be making mega bucks out of supplying the grid with massively over-priced energy because, sadly, Mr Davey couldn't run a piss-up at Carlsberg. 

Labour are massively to blame for the lack of investment and lack of strategic planning for our energy needs, as well as for the introduction of the Climate Change act that is crippling the UK. Many of the investments and problems we're looking at now should have been remedied ten year's ago. This fact has made the current situation worse, but not addressing it properly, not taking on the current piss-taking profiteering of energy companies when it has the powers to do so, is starting to put our power supply at risk, is starting to create the situation where people will be suffering severely, potentially to the point of losing their lives, and is starting to damage our economy and our government.

Mr Miliband's price freeze is not the answer and nor is Mr Major's windfall tax. Neither actually solves the problem. In order to solve it we need a regulator that has the powers (and it does already) to regulate. To find out where the profits are being made, to investigate the financial shenanigins that these companies are engaging in, and can take proper action. Start by kicking one of them out of the market. Then create a environment where these energy retailers cannot belong to a single wholesaler of energy. Get rid of barriers to entry in the marketplace.

In short, get off your arse Mr Davey and fucking do something man.

Thanks for reading.