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

[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.

 

[FB.]

"....Without a fair profit there is no incentive to invest (which maintains or increases the supply of what we want)...."

The low margins and political instability is a deterrent to building new power and gas infrastructure. Do you see many investors queueing up, begging to build new power stations or grid?

"..... if something is too profitable it encourages newcomers to enter the market (as was the case with solar PV companies springing up in 2011).

So with apparently such vast profits available why isn't everyone muscling-in for a piece of the action in the energy market, like they did with solar? Apparently the small energy supplier "Ovo" who were present along with the "big six" was originally started from someone's home kitchen.
If it's that easy and that lucrative, why isn't everyone doing it? Why don't Tesco and Sainsbury's get a piece of the action like they do with high-margin banking, insurance and mobile phones?

 

[FB.]

Explains alot.

But I didn't come here as a troll or shill for the "big six". I came here because I have an interest in renewables. I would also consider myself to be one of the best recyclers. I also spend a great deal of time studying and experimenting with chemical-free fruit and veg growing; any "fertiliser" is in the form of compost and manure obtained from a local recycling site.
Go ahead: test my commitment to "green where practical" by asking me questions about chemical-free "grow-your-own". I particularly specialise in ancient, rare fruit trees.
I'll make a plea for the Milton Wonder apple tree which is in imminent danger from property developers:
http://www.miltonwonder.org.uk/

Just "an old apple tree"? Absolutely not. It is one of the oldest three known apple trees in the world - a real survivor which has outstanding natural disease resistance (no need for sprays) and produces good quality fruit. Unlike the modern varieties which are inbred, sickly, short-lived and disease-prone.

 

[Darkwood]

Again you compare to other non-related markets ..check my edit to last post!

Please realise people are dying because they can't afford to cook or heat their homes .... really hope you can sleep a peaceful night as your money rolls in again this is a moral issue the Energy companies provide an essential service of which without this service lives are at risk... as for all your other investments then fair people play then consumers don't die when shareholders push for more or the accounting is smoke screened to hide profit margins ... sorry but i can't seriously belief that the shareholders of the big 6 have no knowledge of the deceptions that are occurring to ensure shareholders are kept smiling, buying shares is about risk taking and this should be fair play but its all sounding like another big scandal is about to be blown open ..and id like to see your replies when that happens because rumours are a couple of ex employees in the know are ready to talk the truth! - watch this space

PS this is not about your other investments or interests i see no issue at all that way its regarding the nature of this thread and a market that needs a complete overhaul.

 

[FB.]

Please realise people are dying because they can't afford to cook or heat their homes ....

And please realise that even if the companies operated with no profit, or under inefficient middle-managers of government, it would only cut bills by £75 per year.
Far greater savings could be achieved by addressing other costs of living.

So we'll start with capping the power companies.
Then move on to the food retailers.
Then move on to the food manufacturers.
Then move on to the farmers.
Then move on to the oil/gas exploration and production companies.
Then move on to house builders.
Then move on to the pharmaceutical companies.
Then the furniture and household appliance manufacturers.
Then the car manufacturers.
Then......the economy is suffering Soviet-style shortages because nobody can sell anything for a fair price so they don't bother offering it for sale at all.


Where does it stop?
Does it stop when there's nobody left to speak out in defence of the rights of others to make a fair profit?
Does it stop when they come for the profits of your business because it's alright until it directly affects your earning power?
I do not consider the 5-6% profit margin of utilities to be extortionate. Even at almost double that rate it would only be in-line with the typical profit margins of the average company.

 

[Darkwood]

And please realise that even if the companies operated with no profit, or under inefficient middle-managers of government, it would only cut bills by £75 per year.
Far greater savings could be achieved by addressing other costs of living.

So we'll start with capping the power companies.
Then move on to the food retailers.
Then move on to the food manufacturers.
Then move on to the farmers.
Then move on to the oil/gas exploration and production companies.
Then move on to house builders.
Then move on to the pharmaceutical companies.
Then the furniture and household appliance manufacturers.
Then the car manufacturers.
Then......the economy is suffering Soviet-style shortages because nobody can sell anything for a fair price so they don't bother offering it for sale at all.


Where does it stop?
Does it stop when there's nobody left to speak out in defence of the rights of others to make a fair profit?
Does it stop when they come for the profits of your business because it's alright until it directly affects your earning power?
I do not consider the 5-6% profit margin of utilities to be extortionate. Even at almost double that rate it would only be in-line with the typical profit margins of the average company.

This is my point im trying to get across - this is a smokescreen figure with clever use of presentation and wording, the maths don't work here their claims are been questioned and they can't or are unwilling to be transparent to explain them, their has been speculation of collusion between the big 6 and profit manipulation, now under investigation cracks are showing in their claims and stories and very big ones so all this post im in agreement with if the last sentence were true hence i said numerous times the figures are been conjured for the public eye when in reality profits could be 30-40% as has been claimed already but when they refuse to be open and transparent its can only be because they are hiding something big ... they are in control of both the generation and selling this gives them an easy playing field to manipulate any figures and never be found out but fate has stepped in i.e. the little man who is exposing the lies they are claiming.

 

[FB.]

"...this is a smokescreen figure with clever use of presentation and wording, the maths don't work here their claims are been questioned and they can't or are unwilling to be transparent to explain them...."

Quote from Centrica's latest results (for year-ending 2012):
"....The preliminary results of the year ended 31 December 2012 have been extracted from audited accounts...." (my emphasis on audited)

Accounts available here: http://www.centrica.com/files/results/prelim12/2012_preliminary_results.pdf
Auditor comments here: http://www.centrica.com/files/reports/2011ar/index.asp?pageid=70

So you're claiming that not only Centrica are engaged in outright fraud, but their auditors are facilitating a cover-up?

Be careful with your response, because it may have legal implications if you cannot back up what you say.

 

[Darkwood]

Quote from Centrica's latest results (for year-ending 2012):
"....The preliminary results of the year ended 31 December 2012 have been extracted from audited accounts...." (my emphasis on audited)

Accounts available here: http://www.centrica.com/files/results/prelim12/2012_preliminary_results.pdf
Auditor comments here: Centrica plc - Annual Report and Accounts 2011 - Financials - Financial Statements - Independent Auditors' Report to the Members of Centrica plc

So you're claiming that not only Centrica are engaged in outright fraud, but their auditors are facilitating a cover-up?

Be careful with your response, because it may have legal implications if you cannot back up what you say.

I make no claims it speculation for the purposes of debate ... i give opinions take them how u want.
I will not make a open accusation but the auditors can only use the info given if the info of any company is in its foundation manipulated at source and figures and sums cleverly expressed then how would they suspect anything, when you generate the very product you sell to yourself then its simple to create a fantasy profit margin tailored to whoever is interested....

Your either in denial here or very gullable .... how can 2 small players in the market show the big 6 up to the extent that they cant reply .... ill tell you why because they walked in all invincible and left with tails between their legs ......

 

[FB.]

.... how can 2 small players in the market show the big 6 up to the extent that they cant reply .... ill tell you why because they walked in all invincible and left with tails between their legs ......

If it is so profitable, why are there only two small players? When solar PV offered high rates of return it didn't take long for new installation companies to spring up all over the place and it didn't take long for homeowners and rent-a-roofers to catch on.
So why the slow take-up of companies competing with the big six? If the big six under-state their profits then surely there's a bonanza waiting for smaller players as they could both report higher profit margins and offer lower prices to consumers: a win-win situation.

 

[Darkwood]

If it is so profitable, why are there only two small players? When solar PV offered high rates of return it didn't take long for new installation companies to spring up all over the place and it didn't take long for homeowners and rent-a-roofers to catch on.
So why the slow take-up of companies competing with the big six? If the big six under-state their profits then surely there's a bonanza waiting for smaller players as they could both report higher profit margins and offer lower prices to consumers: a win-win situation.

There are many more than 2 small players it was just the fact they were the bigger ones out there that they were called to the committee meeting i never said there was only 2, and no matter how you cross examine my posts the very point is im trying to make is that the big 6 has been delivered a blow by the little man ...ive not made this up it was televised live and is available to view on catch-up ... anything ive speculated or said has already been in the public domain by media coverage, political programs and the rest so accusational wise its already out there by bigger fish, if you watch the debate it was even suggested that collusion is a factor, OVO's rep' accused the big 6 and explained how they did it on live TV so i doubt me repeating any of this is going to be a legal issue to me.

Ive enjoyed the debate between us i hope i may have opened your eyes to who exactly you decide to invest in but if morals come after profit then ill never change your mind.

You as you have admitted have a vested interest to defend my opinion and your right to but think on this on we have to agree to disagree, i study politics and economy and im expressing opinion from a neutral front where as you hold biased from the start .... i have agreed with many things your have pointed out except the relevance to the big 6 so ill end on that note - the pillow is calling

 

[yorkshiremike]

If it's believed that the big 6 are ripping us off, then rather than just repeat this as a mantra as most politicians and the press (including the BBC) seem to be doing, it should be being demonstrated how. Since most of the big 6 are vertically integrated it may be that they shifting profits upstream, but it doesn't seem very likely based on the current evidence:
1) There's visibility on the rest of the company's profits and they don't appear excessive - so where are they hiding this excess profit?
2) Energy prices paid in the UK are in line with the rest of Europe (unless of course it's a European conspiracy!), this is particularly the case for gas, which (before local 'taxes') appears to track the 'production price'. Electricity prices seem to be explained by the country's production method, e.g. cheaper in France (Nuclear) and some of the Nordics (Hydro), getting more expensive in UK as coal is switch out, fairly expensive in Germany (Green subsidies/taxes)
3) They are regulated and there is no evidence for conspiracy/cartel operation.

And despite the smaller companies like OVO not being subject to some of the same costs (e.g. ECO), then for me at least they are still not the cheapest and this even after the announced price rises.

More of a problem for the poor/low energy user is the impact of standing charges, and reducing their usage has less of a reduction on their bills. It might be more benefit to mandate no standing charge, so that high energy users subsidize the low.

 

[Worcester]

If it's believed that the big 6 are ripping us off, then rather than just repeat this as a mantra as most politicians and the press (including the BBC) seem to be doing, it should be being demonstrated how. Since most of the big 6 are vertically integrated it may be that they shifting profits upstream, but it doesn't seem very likely based on the current evidence:

You obviously closed your ears when BG answered these exact question at the Parliamentary Questions, and they made it clear that there SERVICES division was the one that made the big profits mmm... guess who they cross charge a lot of business to .....

More of a problem for the poor/low energy user is the impact of standing charges, and reducing their usage has less of a reduction on their bills. It might be more benefit to mandate no standing charge, so that high energy users subsidize the low.

Often the 'poor' user ISN'T a 'low' energy user because of the the type of property they live in - do you have any facts to substantiate this claim that the standing charge is causing any such problem?

More likely their ignorance and and 'laziness' when it comes to shopping around and switching - I was with one customer today who just filled his oil up last week at 67.56 p/litre, I filled mine up, same volume, same postcode 55.2p / litre..... I pointed out they could cut their bills by 20% just by shopping around, however they've been with their current supplier for 10 years now, and he always calls just when they need it filling, so they tell him to without asking the price....


I've stayed out until now, and I'm not coming back in......

 

[yorkshiremike]

Hi Worcester,
Not sure if you'll read this, but it is a non sequitur, to think the high (18%+) profit margin in residential services explains much:
- It isn't a 'secret that was revealed to parliament', but has always been declared in their annual accounts (Centrica plc - Annual Report and Accounts 2012 - Business Review - Operating Review - British Gas)
- Services are quite a bit smaller than the energy supply side, so its 'big profits' contribute about 28% of British Gas's total profits.
- The vast majority of the residential services revenues, have nothing to do (no chance of offset/transfer pricing etc) with the energy supply side. Most revenue is from service and installation of central heating systems. Residential services do some insulation work, so it's possible some of this is cross charged from the supply side (e.g. as part of ECO). However, this part of the business is some proportion of the 100k 'other' contracts they had in 2012, versus the 8 million+ contracts they had for gas/electrical/plumbing installation and services, so not much opportunity to transfer 'excess profits' across.
You're right, that a large part of the problem is that some people can't for what ever reason 'be bothered' . Most of the big 6 have fixed deals at a discount to their standard tariff that few apply for. You'd hope that the poor in badly insulated homes would apply for the 'grants' available, so that we have fewer poor high users of energy. But although (as you say) there is an overlap between 'poor households' and 'poor quality housing' (e.g. see 'Hills report' on fuel poverty https://www.gov.uk/government/publications/final-report-of-the-fuel-poverty-review) it is still the case that poor households spend less on energy and ('high') standing charges are regressive (low users charged relatively more). For example, our energy use is 50% of average (mainly due to insulation, but I'm a tight-wad Yorkshire man who keeps the heating below 17 deg C) , and the standing charge with the big 6 means our effective unit rate is over double in the summer and about 30% higher overall, which reduces any incentive to economise more (next move would be to disconnect from gas altogether).

 

[Gavin A]

IMO standing charges should be banned, as should charging more for the first x amount of units used.

These charges are completely regressive, as well as working against the principles of energy efficiency / using pricing mechanisms to nudge people into reducing their energy usage etc.

 

[FB.]

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