Time to Fix the Big Six and the broken energy market

To put some numbers into this conversation from one source – just for discussion.
A typical dual fuel energy bill of £1128 for 2015 is broken down into:
1. Supplier costs + commodity and production cost – gas and electricity – £669
2. Govt. energy policy and regulatory costs + energy transportation costs – £459.
So, on the basis of these figures, the costs under control of the energy company are 59% of the total. Not wholly true, of course, because they don’t have control over world energy prices, so their direct costs are 19% of the bill.

These costs can be broken down:
Supplier costs = operating cost £152 + smart meters £13 + profit £53
Commodity cost = electricity £158 + gas £293
Govt regulatory etc = Tax £54 + carbon tax £42 + supporting low carbon technologies £47 + improving customer energy efficiency £38
Energy transportation = use of distribution network £96 + use of national grid £25 + use of gas network £161 + gas storage £5 + balancing and other £8.

It is not a simple topic, and there are many components that are controlled by organisations other than the energy supplier. It all needs careful examination, including the commodity costs and where profits lie there.

So all I am asking is that rather than whipping up emotions we at least examine what facts there are, and probe into those that are not so easy to find.

As I understood it, Ofgem were to produce an interim report at the end of March on the retail energy market. Is this still the case? If so, would it not be wise to see what they have to say? They have not performed well in the past, so I’m not holding my breath, but if they prove lacking this time then that surely is the time to put the maximum pressure on government to both decide Ofgem’s future, and to urgently do a proper investigation of the energy industry. Or, you never know, Ofgem may finally have got the message that they should be looking after consumers’ (domestic and commercial) interests and come up with some useful measures. Do you have any inside information on this, Josh?

I couldn’t go along with the fixed costs of domestic energy supply being met from taxation since it would be inequitable for those without mains gas and those who generate their own electricity. I would be in favour of a regionally-standardised “meter charge” for each meter that would cover the running costs/maintenance of the supply system [bearing in mind that the capital costs of new supplies are paid for by the developers or property owners]. I’m not sure that even the lowest user should entirely escape the cost of being connected so that as and when they do flick a switch their lights come on or their hob-ring burns. The “meter charge” could be determined by Ofgem.

The provision and upgrading of electricity generating capacity and high voltage transmission are funded by the generators which are repaid through the wholesale price. As has already been said, it is vital that this be isolated and exposed where inter-company trading occurs. Similar arrangements can be made for gas extraction, storage and trunk distribution.

While I can see there is a difference in “transportation costs” I really wonder whether that difference (or high charges by the original incumbent from 20 years ago) make the prices as they are – years ago when we were first able to switch company, the “original” provider was undercut by others trying to increase their market share.

Over time, I suspect the pricing has not been based on true “transport costs” but all the firms jiggling their prices in a particular region to remain “competitive” on gas or electricity (but possibly not both). Looking at prices around 5 years ago, there were remarkable differences between high and low prices (at that time I compared British Gas, and switched to another provider).

Now, just looking at the Co-Op prices, I see that North Wales, Cheshire and Merseyside gets charged about 2.5p more per kWH than the cheapest, and over 1p more than the rest of the region they call the North West. That’s over 17% higher (and on Economy Seven, rises to around 20% higher… but then check the night time rates and the prices on Economy Seven are much closer together, apart from N Scotland, so how can the ‘daytime’ prices be so significantly different?)

I had looked at one of the EDF plans a while back, which had lower electricity rates, but I think I will now have to consider switching to Economy Seven and work permanent nights, since my computers consume a fair amount of electricity. Add to that the cost of heating something in an electric oven (fitted before I moved in) and an electric kettle and that 17+% hits me each time I switch something on!

I can live with 3W and 4W LED lamps very happily (compared with the 30-50W halogens, and 40-100W ‘old’ tungsten filament bulbs). I often listen to “Up All Night” on Radio 5, so I will switch from my current business (which often means working to daytime “office hours”) to solely working on the internet, and make contact via e-mail only, so daytimes I will sleep…

The following are extracts from a meeting held on 3rd March at a Select Committee Meeting between MP’s The DECC Infrastructure Group and HM Treasury on the impact on consumer utility bills within the next decade and what is affordable. Some confusion as to who decides on affordability. Probable £38 increases on consumer bills to pay for future infrastructure. Lower income families hit more with15% of income spent on energy and water amounting to an 11% fall in income. Questions over intermittent power generation – are the Regulators fit for purpose? Energy companies not delivered for consumers over the last decade in prices. UK comparable to Estonia with regard to affordability according to Patricia Hodge. Worst of all money gained on profits which should have been used for infrastructure has gone to investors! Consumers will be expected to foot the bill. No Government Body taking responsibility for price hikes.