Society & Culture1 min ago
Should Ofgem Have The Power To Force Price Reductions?
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It's ironic that many experts see the reason for prices not being cut now is Ed's pledge to freeze bills if he wins the election. His proposal prompted the big 6 to buy up energy at the prices prevailing 6 months ago as everyone thought there was a very high risk of the costs of gas/electricity/oil continuing to rise this winter. And they aren't going to cut prices now even if they can afford it since they will be locked into those reductions if oil prices start to rise again.
Gas and Electricity -- and even Water, I suppose, although I don't know how water bills work -- are the sort of products where I don't see that "competition" really means much. It's not like the consumer has much choice. You buy our products, or you freeze over Winter. With little pressure then of losing customers as a whole, the Energy market can afford (and even conspire) to keep prices artificially high, and there's little that can be done about it without some outside regulator being able to step in and say "no, the market average is 50% higher than it should be," or some such, and then cut prices to reflect this.
I agree that the competition isn't working but I think the answer has to be to make the competition work better rather than trying to control prices in a very complicated market where energy firms don't just buy energy as they need it- they buy it often very far in advance.
I've always done pretty well out of changing suppliers regularly and making sure I pay in the cheapest way (DD, online bills), but it's a shame that something like 70% of people have never switched and just accept their current supplier
I've always done pretty well out of changing suppliers regularly and making sure I pay in the cheapest way (DD, online bills), but it's a shame that something like 70% of people have never switched and just accept their current supplier
I am sure it's been considered and rejected but i wonder why the government can't create a 'preferred supplier' based on a commitment to service levels and charges- and then the government encourages everyone to switch to that for maybe 12 months, then the suppliers have to submit a new tender and the process starts again
Most power companies paid for their fuel in advance (at the prevailing wholesale prices) months ago. They did that to ensure that they (and their customers) couldn't be hit badly if prices were to rocket up. So the recent reductions in wholesale prices are irrelevant because the energy companies won't get a refund on what they've already paid.
Despite people saying that competition doesn't work, it's kept power companies profits to no more than approximately 2% of what they receive from customers. So if someone is paying £1500 per year for their fuel, and their fuel supplier decided to forego all of their profit, the very most that the customer's fuel bill could go down by would be £30.
Despite people saying that competition doesn't work, it's kept power companies profits to no more than approximately 2% of what they receive from customers. So if someone is paying £1500 per year for their fuel, and their fuel supplier decided to forego all of their profit, the very most that the customer's fuel bill could go down by would be £30.
I'm not fully aware of the vagaries of the industry, to be sure. "Prices are too high" is one of those refrains that can't just be considered in terms of the consumer, and the companies do after all have to make money and have to pay their staff, etc., so it's fair enough that prices reflect that. All the same, competition can't work in an industry unless both of the following conditions are met: the consumer must have a free choice between different providers; and the consumer must have the free choice not to buy the product at all. Gas and electricity as products are basically vital for life in this country, ditto water, so can't in principle be competitive markets, at least not completely.
I think the timing thing is a bit of a red herring. Once a stockpile is created, that cost has already been spent. The stockpile merely has to be maintained at "today's" prices. One can either take the view that the price of the last stockpile top-up is the one to use, or the price of topping it up as it is being used today should be used instead. I'd suggest the cost of restocking today is more relevant, but that is a matter of opinion. Provided the companies are equally rapid as responding to changes both on the way up and on the way down, and stay consistent. No using the higher price of the two as it suits them.
Government control, as a general rule, should be as light a touch as possible, but when the customers are over a barrel, then a stern framework that limits the use the UK public as an easy target for excess profits, is probably necessary; whatever rules are used to define the acceptable price range.
Government control, as a general rule, should be as light a touch as possible, but when the customers are over a barrel, then a stern framework that limits the use the UK public as an easy target for excess profits, is probably necessary; whatever rules are used to define the acceptable price range.
No.
Governments should keep out of interfereing in private business.
The Independent watchdog (appointed by the Government) should Have a remit top stop prices being too high Not to stop the operators making a profit.
The fact that we have a regulator at all shows what a failure privatisation was. It was supposed to create an open market with companies competing for customers. That was supposed to keep prices down and profits moderate. But that doesn't happen.
Perhaps the whole industry needs looking at. They seem to be operating as a cartel and not in the interests of their customers.
Governments should keep out of interfereing in private business.
The Independent watchdog (appointed by the Government) should Have a remit top stop prices being too high Not to stop the operators making a profit.
The fact that we have a regulator at all shows what a failure privatisation was. It was supposed to create an open market with companies competing for customers. That was supposed to keep prices down and profits moderate. But that doesn't happen.
Perhaps the whole industry needs looking at. They seem to be operating as a cartel and not in the interests of their customers.
Factor-fiction
// It's ironic that many experts see the reason for prices not being cut now is Ed's pledge to freeze bills if he wins the election. His proposal prompted the big 6 to buy up energy at the prices prevailing 6 months ago as everyone thought there was a very high risk of the costs of gas/electricity/oil continuing to rise this winter. //
That doesn't make any sense at all. Firstly, these deals are always done months in advance. Secondly, if Ed might get elected in May, surely they would buy in December at a high price, so that costs were high next May. It does not make sense to diberately buy high last summer.
// It's ironic that many experts see the reason for prices not being cut now is Ed's pledge to freeze bills if he wins the election. His proposal prompted the big 6 to buy up energy at the prices prevailing 6 months ago as everyone thought there was a very high risk of the costs of gas/electricity/oil continuing to rise this winter. //
That doesn't make any sense at all. Firstly, these deals are always done months in advance. Secondly, if Ed might get elected in May, surely they would buy in December at a high price, so that costs were high next May. It does not make sense to diberately buy high last summer.
Sorry gromit- yours doesn't make sense to me.
I'm saying they bought energy when Miliband made his announcement last year- maybe six months ago. They bought it then thinking prices would go up- just as all experts were advising the public to take out long term fixed price deals.
I'm repeating an argument some experts have made on programmes on Radio 4. I think there is some truth in it
I'm saying they bought energy when Miliband made his announcement last year- maybe six months ago. They bought it then thinking prices would go up- just as all experts were advising the public to take out long term fixed price deals.
I'm repeating an argument some experts have made on programmes on Radio 4. I think there is some truth in it
I agree, gromit, that (many of) these deals are done in advance. The difference her else that after the Miliband announcement bought more of the energy on the wholesale market 6-12 months in advance- much more than it otherwise would have done- to hedge against future increases in wholesale prices since they would be unable to pass these on to customers if /when Labour win
I'm no expert, but I cannot verify Buenchico's 2% profit. The last year I can find figures for is 2012 and the profit was 4.4%.
// The average dual fuel household customer bill in 2012 was £1,174, while the average supplier profit was £53 per customer, providing an average profit margin of 4.3%. //
I am not saying 4.3% is excessive, just that it is more than double the 2% figure.
// The average dual fuel household customer bill in 2012 was £1,174, while the average supplier profit was £53 per customer, providing an average profit margin of 4.3%. //
I am not saying 4.3% is excessive, just that it is more than double the 2% figure.
If a company buys 12 months in advance at an high price and then the price plummets, then that is just a bad call. The fact that they did it (if they did) to make sure prices were high if Labour win the election is unfortunate. The last Labour Government were masters of unintended consequences, so this might be just another on of those.
As I said in my first reply, the present Government or even a possible future Labour one, should not interfere.
As I said in my first reply, the present Government or even a possible future Labour one, should not interfere.
I think Ed is on to a winner here. Like many people, I never agreed with the wholesale hiving-of our utilities at the time and now its even more obvious that it has been a greedfest for the suppliers, and disaster for the rest of us.
Given that the primary purpose of the Regulator was to stop us all being ripped off, its now abundantly clear that privatisation hasn't worked. I remember all the power companies sending round armies of workers, all clad in matching fleeces, persuading us all that we were better off with their company, rather than the one we changed over to the previous month. Well, it wasn't just their staff that were fleeced. as these Teams forged signatures on 1000's of forms, and changed us over whether we wanted to or not.
Now they are being tardy with reducing their prices...surprise, surprise !
It is sometimes said that there isn't any real difference between the Tories and Labour these days. Well here is a policy that could make a real difference, and I for one, hope it goes ahead.
Given that the primary purpose of the Regulator was to stop us all being ripped off, its now abundantly clear that privatisation hasn't worked. I remember all the power companies sending round armies of workers, all clad in matching fleeces, persuading us all that we were better off with their company, rather than the one we changed over to the previous month. Well, it wasn't just their staff that were fleeced. as these Teams forged signatures on 1000's of forms, and changed us over whether we wanted to or not.
Now they are being tardy with reducing their prices...surprise, surprise !
It is sometimes said that there isn't any real difference between the Tories and Labour these days. Well here is a policy that could make a real difference, and I for one, hope it goes ahead.
If the energy companies reduced their prices now they would be less likely to have their prices frozen come the day.
I don't think OFGEN should be able to force energy companies to make reductions but they should be making recommendations in the strongest possible terms. The big energy companies are being allowed to rip us all off in the name of "competition" "and freedom of choice" - as if E.on (poncy name or what)'s gas is any better that nPower (another one)'s
I don't think OFGEN should be able to force energy companies to make reductions but they should be making recommendations in the strongest possible terms. The big energy companies are being allowed to rip us all off in the name of "competition" "and freedom of choice" - as if E.on (poncy name or what)'s gas is any better that nPower (another one)'s
>"its even more obvious that it has been a greedfest for the suppliers"
In what way is it obvious, mikey? I have no strong feelings either way about renationalising energy (although we know that will never happen in our lifetimes) but what evidence is there that this is a 'greedfest'? Buenchico and Gromit have both showed that profit margins are 2-4%, which is at the low end of what leading companies seek to make to keep shareholders wanting to support them
In what way is it obvious, mikey? I have no strong feelings either way about renationalising energy (although we know that will never happen in our lifetimes) but what evidence is there that this is a 'greedfest'? Buenchico and Gromit have both showed that profit margins are 2-4%, which is at the low end of what leading companies seek to make to keep shareholders wanting to support them
I have a feeling that small prices reductions will be announced over the next month or two, as hopefully the energy companies have been agreeing large new contracts with wholesalers at the lower wholesale price levels.
The energy companies know a price cut now will weaken Labour's pledge and help the Tories (Cameron can say "we don't just freeze prices, we create the conditions where prices actually fall"), thereby reducing the risk of Labour imposing prices.
The energy companies know a price cut now will weaken Labour's pledge and help the Tories (Cameron can say "we don't just freeze prices, we create the conditions where prices actually fall"), thereby reducing the risk of Labour imposing prices.
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