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A virtual CEO explains why energy profits are on the up

Energy suppliers often tell us they don’t make a lot of money from selling gas and electricity, but as huge profits are announced, it prompts the question, ‘am I paying a fair price for energy?’

Yesterday morning it was EDF’s turn to announce a 4.6% increase in profits during the first six months of this year. This followed last week’s news that British Gas recorded a 23% increase in profits.

How do you solve a problem like rising profits?

I am going to play devil’s advocate now. Don’t take this the wrong way – I am taking the liberty of putting my place in the role of being a virtual energy chief exec who has to explain profits to my customers. Here’s what I might say:

  • ‘Look at the weather! It’s been colder than usual this year and I’ve made more profit because more people had their heating on for longer.’
  • ‘It may seem to be a big increase for 2012, but it looks worse than it is. Last year people cut down on their gas and electricity. It’s really unfair to compare last year with this one.’
  • ‘I’m not making money from selling gas and electricity to customers, the profit is from the generation side. Actually, I’m losing money from the retail side of the business!’
  • ‘I need this money to invest in the future to keep the lights on.’
  • ‘Anyway it’s not me taking all of the money from you, the government forces me to charge you for all sorts of things which I have to add on to your bills.’

I’ll stop now, you probably get the picture, and it’s actually quite difficult for me to stay in character! Also, I’m still not convinced by my own excuses – especially as so many people are really struggling.

Just last week the Which? Quarterly Consumer Report found that debt levels were at their highest since the 1980s, at £1.5 trillion. More than one in four people said they would try to cut back on food, and energy bills are one of our top concerns. Some people told us they had defaulted on their household bills last month.

Are we getting a fair deal?

Which? isn’t against companies making a profit, as long as it’s transparent that consumers are getting a fair deal. We also want to encourage unhappy customers to vote with their feet and switch company if they feel hard done by. So for both of these reasons it’s important that energy suppliers work hard to show that they are not making unjustified profits at the expense of their customers.

So what do you think energy suppliers could do to convince you that you’re getting a fair deal and that they deserve their profits? More information on your bill? A comparison breakdown of all the suppliers’ profits and details of their income and spending? Also, what do other companies do to convince you that they deserved their profits and that you are still getting a fair deal?

As a ‘virtual’ energy CEO (for the morning) I really need your ideas!

Comments
Member

Hello Ms Virtual CEO, You could ‘win’ me over by showing the wholesale price of gas and electricity in force over the time of my current bill / annual statement. And not tell me your buyers only buy in bulk just as prices drop and never before rises in the wholesale price. ‘Cos if you do can I suggest you sack the lot of them as they’re clearly not doing your customers any favours.

Oh and out of all of your excuses, I don’t believe “‘I’m not making money from selling gas and electricity to customers, the profit is from the generation side. Actually, I’m losing money from the retail side of the business!’”

Member

OK William, I will get my virtual Executive Assistant on to this right away!

Actually I have already been contacted by a supplier saying they want to talk further about what they should do re profits and trust from customers. Another example that Which? Conversation gets noticed. Any other ideas anyone? Keep them coming in and we will pass them on to the companies.

Member

Essential service companies (gas, electric, water, etc) should have their profits capped, rising in line with interest rates (during hard times all should suffer), any profit above the cap should go back to the consumer.

Member

I like william’s idea – wholesale prices printed on statements? Yes please. I think I’d also be more convinced I was getting a good deal if energy companies improved their customer service – not just by treating me better, not taking more money than they needed, etc, but by being transparent about what is happening with my account. I’ve switched energy companies quite a bit since I moved house a couple of years ago, and although the switch itself has always been relatively easy, I feel like I’m left in the dark a lot, needing to call expensive premium-rate numbers if I want to find out what’s happening with my account, how much money they’ll take from me, and when they’ll take it. Show you’re earning your money by letting me know what’s going on. If something takes 2 weeks and a lot of work to do, tell me and help me better understand where my money’s going.

Member

Hi Nikki, Unlike you I’ve been with the same supplier for years and funnily enough they have an 0800 number to contact them.

Member

That’s really good, william. We did some research recently on which companies have 0800 and 0845 numbers, so seeing the list is handy: https://conversation.which.co.uk/money/premium-phone-numbers-loyal-customer-services/ Quite a few suggestions on the thread were saying that companies should offer regional numbers as well (for those calling from mobiles, who do still have to pay for 0800). I’ll stop now as I’m veering off topic, but it’s interesting research – includes banks and insurance companies, etc too.

Member

I like the idea of including wholesale prices on people’s bills, but in my opinion, I wonder how many domestic energy customers would be interested in this level of information. I’m also concerned about making bills more complicated than they already are. But I’m happy to proven wrong!

Personally, I think it might be more useful for consumers to understand how their energy bills are made up – considering that only around 50% of their prices cover the cost of the energy itself. This PDF from EDF Energy explaining their energy prices is a good example, I think:

http://www.edfenergy.com/products-services/for-your-home/price/your-bill.pdf

Member

Since November 2010, wholesale electricity has increased by 22% and gas 39%†

Yet we’re now in Aug 2012, there’s no mention of the fall in wholesale prices during most of this year and the tail end of last year. The pdf leaves me asking more questions than it sadly answers.

So can I assume they’ll update it once we’ve had a period of wholesale rises ?

Member

Operating costs 20%, most of what they”ve listed would surely be a fixed cost per customer and not a %age. Does it really cost more to read the meter of a high user then me a very low user, I think not. And are they’re trying to tell me they’re not making any profit ? Again, I think not.

The idea is a nice one, but the infor