The “Big Six” energy companies – you may switch, but they’ll still get rich

In your Sunday papers today there will probably be a story somewhere telling you how much some luridly smiling family managed to save by switching energy supplier. Usually, this will involve the family moving from one of the ‘Big Six’ suppliers to a new smaller competitor.

I haven’t investigated how much one can save. But I suppose it is possible to save maybe a couple of hundred pounds a year – maybe £4 a week.

But any savings will be very limited because of the way the energy industry works

There are two parts to the energy business – ‘upstream’ (power generation) and ‘downstream’ (power supply to households). With a claimed profit level of around 5% for supplying electricity and gas to our homes, energy companies insist their profits are low compared to many other businesses. But the clever trick here is their selective use of data. It’s true that profit margins are modest on the ‘downstream’ (power supply) part of the business (4% to 5%). But all the ‘Big Six’ also generate power which they sell to themselves and to the new ‘downstream’ competitors to which we can switch at much healthier profit margins – 25% to 35% (click to see more clearly)

Energy companies’ claims that they are in a ‘competitive market’ and that we have a real choice of supplier are rubbish. It’s almost impossible for a competitor to enter the power generation market as the initial investment costs are so huge. The only place competitors can enter is in power supply. So, the energy companies keep high profit margins on power generation (where there’s no competition) and deliberately keep profit margins low on energy supply to discourage many companies from entering the market.

Angela is back One reason you should never believe any claims by the ‘Big Six’ energy companies about how we can switch suppliers to save on energy costs is that Angela is back.

You remember the fragrant Angela Knight? She used to be head of the British Bankers Association (BBA) and vigorously defended the banks as they plundered our savings and drove the country towards bankruptcy. Bloomberg reported that, in a December 2008 statement, she declared that Libor could be trusted as “a reliable benchmark”. Now that banks have paid billions in fines for fiddling LIBOR, we can get a good idea of Angela’s integrity.

Anyway after leaving the BBA, Angela was the big boss at Energy UK from 2012 to 2014 defending the ‘Big Six’ energy companies:

IMHO experience should tell us that anything that Angela defends is likely to be rotten to the core and right royally ripping us off. Maybe she’ll soon go to work with Mr Blatter for FIFA? IMHO she’d fit in well there.

So, yes you can switch energy supplier and probably save a few quid a week. But the real money in the energy business is being made ‘upstream’ (power generation) and there’s little to no real competition there.

You may switch, but the ‘Big Six’ energy companies are still getting rich.