Energy prices predicted to rise to £3,850 in January...

TBF, nearly half of the Centrica profit came from selling off Spirit Energy to one of the Norwegian sovereign funds.

The suppliers (British Gas, Scottish Power, etc) only make about £10-20 profit per customer per year. The real money is in the extraction (Shell) and generation.

 

When I worked for EON one of the key measures was life time value.

In 2015 it was about 150 quid within the retail/consumer market.

LTV is a calculation of profit over the average ‘lifespan’ of a customer.

They don’t make that much money per customer but it’s then down to the volume of customers.

The price cap policy is obviously affecting this now though and I’d imagine LTV has increased almost tenfold.

 

So do you think the price cap is now lower or higher in relation to the costs for the providers?
As previously many deal existed that were below the price cap and now there are essentially none. Certainly if you are looking at switching.

 

The price cap is significantly higher.

Prior to price capping companies like Octopus could offer significant savings against British Gas. This was because they could offer operational efficiencies. They didn’t and don’t carry the huge cost to serve that companies like BG have. The big 6 are unbelievably inefficient when compared to the entrepreneurial method of an Octopus.

The price cap is based on the big 6 and considers their cost to serve. It’s hyper inflated and because there’s no competition, what incentive is there for BG, or any of the other big suppliers to work on operational efficiencies or to drive down costs because if they don’t you’ll transfer your supply.

The price cap benefits BG because they still had/have significantly more customers than anyone else (they held the gas monopoly before deregulation so had a huge head start). I have no doubt they will have lobbied this policy.

When I worked in Field Sales for EON they lobbied the government to halt all door to door sales as unethical. This was because if they did this, they would plug a gap of a million customer losses a year. They won and I had to stand on a stage and tell 800 people they’d lost their jobs.

 

I don't understand.

I thought the price cap was a maximum that could be charged? In which case, what is stopping the smaller and more efficient providers from massively undercutting the large providers? Obviously, that would mean a smaller profit per customer, but as you say, if you get a lot more customers then you can significantly increase profit.

Price comparison sites have gradually entered the public consciousness over the last decade or so. Most people are now aware of them, but that didn't mean everyone used them. That was probably because although savings could be made, they weren't necessarily huge. At the moment EVERYONE uses them, but there are no savings to be had. If the profit is so high for companies on each customer, why aren't any companies dropping prices to attract more customers? A company could potentially get millions of new customers in a single day at the moment if they lowered prices. Attracting customers wouldn't be the problem, it would be how to stop their servers crashing due to the increased traffic.

I'm clearly missing a vital piece of information as lowering the price to get more customers is how a competitive market works in all sectors. What am I missing?

 

@Jay you’ve put perfectly what I was thinking.

 

I believe Ofgem brought is some legislation making it harder for companies to undercut. If you switch the new provider has to pay a large share of the difference to the old one.

 

I'm not saying you're wrong, but that sounds completely at odds with the whole idea of opening up the market in the first place.

I agree with @Jay. The notion that no-one, not a single company, can find any capacity at all with which to offer a slightly better price than the default cap feels dodgy to me. But what would I know...?

 

How on earth have they got away with that? That's like if a market trader charges you a quid for a kilo of potatoes and Asda charge £1.50 the market trader has to give part of the profit to Asda, because Asda charge more.

That cannot possibly be right can it?

 

Bernardus Cornelis Adriana Margriet "Ben" van Beurden CEO for Shell is up for a 6m bonus this year on top of his 1m+ salary. His expertise and track record as a, CEO in the Petro Chemical industry is unquestionable, but especially in these times you can anyone justify or lay claim to those sort of hyper inflated pay scales? If the articles in the papers are accurate, he is apparently unrepentant and added that "they (Shell) are not miracle workers when it comes to cutting the cost of wholesale gas and Oil" I note the British media have called him and the CEO of Centrica on their front pages for greed and lack of caring. I did note elsewhere that CEO of Centrica Chris O'Shea whose salary is considerably less at 775k has waived his bonus - said to be considerably less than van Beurdens at 1.1m, but still an eye watering amount in the current climate. He suffered the same abuse in certain headlines as van Buerden though.

I am not into the politics of envy, but IMHO there are a number of issues with these bonus and perks related packages.

Whilst bonus schemes which can make up 50% of the total emolument means results based reward in that a bad result can mean no bonus so and effective pay cut of up to 50% for the CEO, that rarely seems to happen. Failure still seems to be rewarded. We have seen many cases where shareholders objections are ignored or overruled when voting on Executive pays and bonuses.

Pay for top execs seems to be closed shop where industry pay rounds are based on levels determined by 'independent external reveiw boards within the industry itself .....Company A determines pay scale for company B who does likewise for company C who in turn does the pay review for Company A. Since they are all singing from teh same hymn sheet they award overinflated pay and bonuses to each other. The argument then follows that "you have to pay the going rate to attract the best". The knock on effect of this is that Public Sector are then forced to pay to attract or retain the best people to avoid a brain drain to the private sector.

The way round this would be a multi-lateral agreement between Governments to introduce a cap on bonuses and salaries at the Top but that would never happen. Unilaterally doing so would mean a mass exodus from any economy imposing it to those that do not.

Finally, reward for success, - growth, profit, increasing employment numbers, wages etc. is IMO worth bonusing thosse who bring that about at all levels of the business (albeit not on the levels quoted). But in an environment where:
a) Reducing the workforce through redundancies.
b) Paying wages that need top ups through the benefits system paid for by the taxpayer.
c) In a period where a large proportion of the population are likely to be unable to pay the cost of the goods/services being provided .....
then CEOS should show restraint. Even worse, these huge profit increases have been 'gifted' by external circumstances rather than outstanding business decision making on the part of management.

As is so often the case, these external conditions that brought about the huge 'windfall' profits still results in an unjustified bonus clause in their contracts being activated.

The self entitlement of some of these people is truly obscene. I would love to know what they do with their millions.

 

W4nk over it; or more probably, pay someone else to w4nk them over it.

 

Because mainly the big 6 are the generators and transporters of the market.

Its not just a case supplying or billing. The other smaller suppliers are at the mercy of the big 6 setting the market.

 

Much of business comes down to ethics, and so often, greed overwrites in. And once someone pushes the envelope, everyone else wants a bit extra. Though thats not just in the realm of UK CEO's.

But I did want to share a positive story of a CEO I know at a UK plc. I shan't name the company though.

Through the pandemic the company asked for volunteers to waive up to 20% of their salary to try and protect the lowest paid and also try and stave off redundancies. That was pretty successful but they still had to make a few redundancies.

Like I suspect with a number of companies, their results were way above expectation and they made very good profits. The CEO was offered a multimillion pound bonus. He waived his right to it while insisting anyone who took a voluntary pay cut had it reversed, whilst backdating it and paying any amounts they'd lost as a bonus.

You could argue that given he could waive several million pounds, he's very well off as it is, which is the case, but I'm sure there are plenty of CEO's and C suite execs who haven't and wouldn't take such an action.

 

As i recall it's called market stabilization charge and I believe they did it with the rationale "to stop the harmful effects of competition"
Which kind of backs up what @Terry Nutkins is saying about the whole system. They have got away with it because they are the energy regulator. The whole thing needs tearing down.

 

That surely cannot be correct. If that was true then every small company that undercuts a big one would go bust. Example...Company A charges £100. Company B offers same service at £70. If they were forced to pay a proportion of the £30 e.g 10% then they are making likely making a loss on every new customer since margins are small. The big company (A)is 'quids in' as they no longer have to provide a service just sit back and watch the money roll in. Sound like an anti competitive practise.

 

From the Ofgem website



https://www.ofgem.gov.uk/publicatio...sation Charge (MSC,wholesale price cap index1.

 

Nobody has mentioned what it will do to football. Turning Floodlights
On in midweek matches and winter afternoons especially grassroots clubs who are struggling will have seen their bills spiral. Not ike turn a couple of lights off in a home.

 

Crazy!! They introduce privatisation to stimulate competition then block competitive practises with legislation.

I am also unclear about people arguing retail suppliers e.g. British Gas have not made profits but the parent company exploration , getting the stuff out of the ground and business wholesale is where the vast profita are made. The thing is this 'company with a company' is akin the 'shell' companies that Corporations set up. Make huge profits in one country but avoid taxes by setting up a subsidiary in a low tax country e.g. Luxemburg then they issue invoices to the company in the country making the profits to minimise on paper those profits and so avoid paying the full tax on Profits.. A bit simplistic but that is the Gist of how many of these huge Global Corporations like Amazon etc. operated I believe.
The argument that extraction costs have not matched increased profits is true so obviously the 'supply and demand' mechanism is the main reason for the increase. The CAP only extends to the domestic market. Perhaps more draconian legislation should be brought in to cap wholesale prices although that would be seen as a 'bridge too far' by the 'Free Market' economies, particularly the Govts of Oil and Gas producing Nations.
A windfall tax , whilst easier to implement, takes too long to filter through (if at all) to the consumers who are most disadvantaged. It disappears into the Treasury never to be seen again, like all those 'fines' companies receive for breaching various rules that have cost the customers millions. I can't recall ever seeing those fines being distributed amongst the victims of corporate greed.

The whole system of unregulated capitalism needs a complete overhaul with far more checks and balances. I won't hold my breath though!

 

That's interesting as I don't remember you being with me during the 90s when it was causing me trouble. Maybe you know where the coat I lost in 1996 is? It was my favourite ever coat and I never found out what happened to it.

 

I saw a video from someone advising people to get into a dispute rather than simply cancelling your DD. They can't take money while ever you have a dispute on the bill, they have to open inquiry which costs them money and time and also it looks bad on their stats - they're only allowed so many disputes before they can be fined. Also if you can get it taken to the Energy ombudesman this drags it out further and costs them even more money, again, without effecting your credit history or risking them breaking into your house and fitting a pay meter - also if you get a CCJ they simply contact your employer who'll take the money out of your pay packet before you even see it,