Energy companies – ripping us off again and again and again!

Here we go again. As soon as our useless supposed energy market regulator, Ofgem, or even more useless MPs start talking about trying to cap energy prices, the energy companies begin bleating about how they’re being treated unfairly. The usual story the energy companies come up with has two main themes:

• they only make a few pounds profit per household per year and therefore any price controls would “hurt investment”
• a cap on energy prices would just lead to increased prices for all of us

What amazes me is that there doesn’t seem to be a single mainstream journalist who understands the well-worn but effective trick the Big Six energy companies play on us year after year after year.

So, I’ll just remind any readers who don’t understand the game the energy companies are playing.

Here’s a breakdown of a supposedly typical household’s dual fuel energy bill:

There are two main parts to our energy industry – generation (producing the energy – the blue section on the chart above called “wholesale costs”) and supply (getting the energy to our homes and businesses – the other sections on the chart above). With me so far?

Hopefully you’ll notice the reddish brown part – “supplier margin”. This is usually quoted as being around a very modest 5%. But this is a fix by the Big Six energy companies who choose where to make their profits. In the supply part, there is the semblance of some degree of competition and you can switch suppliers if you want and possibly save a few quid. But power generation requires massive investment to build power stations and so there is little to no competition. What the Big Six energy companies do is make their main profits on energy generation (where there is no competition):

So, while claiming they are only making a modest 5% profit – about £55 per household per year, the Big Six energy companies are actually making at least four times that and probably nearer six times – 30% – around £330 per household per year. That’s a very healthy profit margin indeed when most other businesses would be happy with profit margins of 5% to 6% and be delighted to get anywhere near 10%.

Moreover, by deliberately leaving depressingly small profit margins on the supply part, the Big Six energy companies achieve three things:

• this discourages too many competitors from entering the market
• this makes switching supplier almost a waste of time for many people as they save so little
• this allows the Big Six to claim that they make very small profits on supplying energy to us (while not mentioning the huge profits they make on generation)

And here some other facts about the UK energy market:

1. Our often foreign-owned energy companies make four to five times as much profit in the UK than they are allowed to make in their properly regulated home markets

2. They are so profitable in the UK that Scottish Power’s Spanish owner Iberdrola could lend its American subsidiary £800m leeched from its UK customers, as the American subsidiary needed the money to meet investment commitments it had made to US regulators

3. Since 2006-7, the useless UK regulator Ofgem’s budget increased from £18.6m to over £33m and yet due to Ofgem’s pathetic efforts, the UK is one of the most profitable energy markets in the world.

Whenever there is publicity about the profits made by the Big Six energy companies, they always hide behind the dishonest “we only make about 5% profit” story and our MPs and journalists are so financially ignorant that they don’t see through the energy companies’ trick and challenge them on the massive profits made from power generation. As for the supposed regulator, Ofgem, they know what’s going on. But like most of our supposed ‘regulators’ – Ofwat, Ofcom etc etc – they side with those they are meant to regulate rather than those whom they are meant to protect from exploitation.

So, please don’t get taken in by the Big Six energy companies’ claims of their profits being squeezed by any attempt to cap their prices.

The Big Six energy companies are making so much profit in Britain that they’re laughing all the way to their (usually foreign) banks due to our Government’s, Ofgem’s, our journalists’ and our own stupidity.