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Do you know what your energy bills pay for?

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I’m sure you’ll have heard about the latest announcement from British Gas today. The company posted an 11% rise in profits on its residential supply business. But I’m not here to bash British Gas for making money…

British Gas’s announcement makes a big play of what it’s doing to help its customers in these tough times. For example, the 400,000 British Gas customers who received a £130 rebate on their energy bill through the Warm Home Discount, and the 700,000 insulation installations it completed in 2012. All sounds very generous, doesn’t it?

Only it isn’t in the grand scheme of things. All of the major energy suppliers are required by the government to give that £130 back to vulnerable consumers (those over 80 or those in receipt of pension credits) as a way of helping them deal with rising energy costs.

Energy company obligations

And how about the 700,000 insulation jobs British Gas did last year? Well those were carried out under the Carbon Emissions Reduction Target (CERT), another government programme that the big energy companies are obligated to deliver under. I bet you’re wondering who pays for policies like CERT and the Warm Home Discount… Well guess what? It’s you and me.

Each time you pay your energy bill a portion of that payment subsidises that ‘free’ insulation and another portion helps energy companies to give some customers a £130 rebate.

We’ve been campaigning for more openness in how much people pay for these schemes. Up until now it has been very difficult to tell how much of consumers’ gas and electricity bills go towards them. But there is hope.

Asking for openness

Under the government’s new Energy Company Obligation – which replaces CERT and a number of other energy efficiency programmes – we’re hopeful that the reporting of these costs by energy companies will be much more rigorous. This means that it will be far easier to analyse the costs that energy companies pass on to you and me through our bills.

Of course, if our proposal for a single unit price for energy was introduced, then these costs would also be applied on a fairer basis. Rather than being passed on as a fixed charge that is the same for every customer, your contribution to these schemes would be directly linked to the amount of energy you use.

There’s nothing wrong with people paying a little extra on their energy bills to help others with some free insulation, especially vulnerable customers. But it is important that we know how much money is added to bills and whether the way it is spent represents value for money. And as well as being more open about how companies spend the money, they should also be clearer about why they’re spending it.

Comments
Guest

Figures can distort the truth.
1. British Gas made a profit of only 5% for 2011.
2. A 10% increase in Profit represents only an extra 0.5% or 5.5% profit
3. Do you not think 5.5% profit is reasonable?
So, where does your money go, if it’s not the “greedy, greedy” Utility Companies?
After the cost of the gas, the main expenses are transporting it and taxes
If, we call all the money the Government takes, “Taxes”, then this will be around 20% (including the hidden stuff).
Thus, it is obvious just who the main beneficiaries are from any increase in profitability…
Furthermore, this should raise several questions in your mind:
1. If the profit is only 5%, where is there room for competition?
2. Why are all sources of information complicit about (wrongly) blaming the utility companies?
3. Of what use is OFGEN?
4. The utility companies keep stoom so as not to upset the applecart?

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Guest

You echo my thoughts entirely. However, you could have taken this further: where do profits go? Dividends go to shareholders. Of these, a mere 20 percent are individuals. The remaining 80 per cent are funding your pension, life assurances, ISAs etc. Anybody who does not want a business to make a profit clearly wants that business to be unattractive to further investment, with the results that will then occur. Why is it unacceptable for a profit to be made from supplying energy, but acceptable from selling food? We could get by without energy, but I doubt we would get far without food.

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Guest

British Gas don’t just make a profit from buying gas from someone (who makes a profit), paying for it to go through someone else’s pipes (they make a profit too) then sending you a bill for the gas plus substantial corkage for doing it: remember, all most domestic energy companies supply is bills, they don’t supply energy.

Anyway they also make a tidy sum for flogging you worthless insurance policies on your central heating then trying to charge you an astronomical sum when it goes wrong. Type “british gas powerflush scam” into google. We were quoted over £800 for just this a few weeks ago. I got a second opinion from a very reputable local firm who told me it won’t do you any good as you will still need a new boiler afterwards which they’ll want another £2500 to install. He replaced my boiler and did other remedial work on the system for less that £1500, did a very good job and BG’s service contract is in the bin.

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Guest

Yes, indeed, they do make a profit; do you expect businesses to work for nothing? Like corkage, this covers the cost of providing a service.

With regard to insurance policies, these are not worthless just because one aspect you happened upon required further work. Quotations for work always have a range of prices – is everyone more expensive than the cheapest ‘trying it on’? For major expenses any wise person obtains a variety of estimates, and then you can choose…

Guest
Nic Evans says:
7 April 2013

Transportation costs interest me, for the following reason: my electricity supplier – the Co-op – inform me that they will have to increase prices because transportation costs are to increase. Now who provides the transportation? National grid (a US owned monopoly) and regional distributors (in my case, Western Power Distribution plc – also a monopoly). So even when I switch supplier I have no choice of the transport provider. OFGEN recognise this, but why have they agreed to increased charges? I am not aware of any compelling reason (such as increased fuel costs or higher labour costs) . I visited their website but their documentation almost seems to be deliberately written to confuse the lay person.

Guest
Peter Mayhew says:
28 April 2013

Can I throw in an old chestnut concerning who used to own all the utilities, it was us via the Government until the fools sold it off for political purposes. The utilities should be re-nationalised then we would have standard tariffs, no fat cat share holders to pay dividends to and any profits should be ploughed back into the infrastructure. Problem solved!!!!!!!

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Guest

Paying for government inefficiency in running energy supply could mean higher fuel prices than paying for the profits made my fuel companies, so you could end up with higher bills. I have no problem with government taking over one company and competing for our custom – but be prepared to be disappointed.

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Guest

Simple question? Why didn’t it work before, then?

Guest
Peter Mayhew says:
29 April 2013

I think that this is where everything seems to go wrong. I used to work for Royal Mail and because the Govenment used us as a cash cow we could never invest enough to keep the system running efficiently. Then when we look at the NHS and the government want to close needed parts of Stafford hospital rather than sorting it out. It’s a farce. It also seems that, like the Fair Fuel campaign, if we use the internet and social media the ‘ordinary individual’ can affect change in government thinking. Which could maybe use this example and also it’s recent fight against the big six energy companies to work on the government to re-nationalise all the utilities, rail etc, and have them run efficiently by entrepreneurs such as Richard Branson. We now have a method to enable massive numbers of people to voice their opinions, to the government, on the mess that the country is in so we should make the best use of it. There must be better brains than mine ‘out there’ that can come up with sensible solutions (no, not the government, they are all in it for the cash and glory) and who are willing to put the Great back into Britain.

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Guest

I have rarely read such a poorly argued comment. In the second sentence there is the claim that the Government used Royal Mail as a cash cow, and then later a suggestion that other companies would be better nationalised. This is followed at the end by ‘not the government’; in which case, who? Where is the money to come from? If it is the Government, they (and most of the voters/taxpayers, I imagine) would want the Government to have a say in what happens to that money. The argument goes round in circles. Can it really be imagined that the mass of social media users have any answers at all? It is necessary to read only a few blogs and twitters to see that the majority of opinions expressed are incredibly facile and have absolutely no concept of working in a democratic political system. If the mass of ‘ordinary individuals’ referred to were to tweet that they wouldn’t mind their income tax rising by about five pence in the pound, then we might be on the way to financing such hair-brained schemes, but that’s unlikely I feel!