Tuesday 18 October 2011

Tuesday, October 18, 2011 Posted by Jake 9 comments Labels: , , , , , , , ,
Posted by Jake on Tuesday, October 18, 2011 with 9 comments | Labels: , , , , , , , ,

Another addition to our Liebrary: How is it that our leaders, including the well coiffed Cameron and the buff Huhne, are so poorly briefed about wholesale energy prices? 

So poorly briefed that Cameron and Huhne went to a high profile showdown to 'get tough' with the Big Six energy companies and come away mesmerised by the idea that retail prices are driven up by wholesale prices? Coming away preaching that the solution is for us all to wrap up warmly and search the internet for a lower tariff:

Graphs from Consumer Focus, the soon to be axed "statutory consumer champion for England, Wales, Scotland and (for postal consumers) Northern Ireland", show the truth.

Wholesale prices have indeed risen in recent months. But that follows an even bigger fall in the months before that. Which all left wholesale prices well below their 2008 peak.  

On the other hand, the average retail price rose with the peak in 2008,  failed to fall as wholesale prices plummeted throughout 2009, and now starts rising even above the 2008 peak.

Electricity Prices - Wholesale vs Retail (graph from Consumer Focus, updated upto 2014)
Wholesale v retail electricity
Gas prices - Wholesale vs Retail (graph from Consumer Focus, updated upto 2014. Consumer Focus commented "For the second time in the last few years, average consumption levels for both fuels were revised downwards in late 2013 by Ofgem. This accounts for the “fall” in the retail gas price despite all suppliers putting their unit prices up.")
Wholesale v retail gas
See the full Consumer Focus article - click here [NOTE: The government closed down Consumer Futures as of 1st April 2014. As far as we can tell, this graph is no longer maintained]


  1. Further to using your info i wrote to British gas and explained my unhappiness about the price rise please see response

    Dear Mr McGurk

    I'm sorry you had to contact us again with regards to the price rise.

    The profits we make form a very small part of our customer's bills only £5.00 in every £100.00 of an energy bill is profit, similar to last year and lower than two years ago. We show a breakdown of our costs on your bills so you can see where your money goes and the profit we make is reinvested to help secure energy supplies for the UK.

    We know rising costs are a big concern for many customers and we know how important it is to help our customers following our price change. To find out what we can do for you, take a look at our website. Small changes can make a big difference.

    We don’t want to lose you, so as a thank you for being with us, I've arranged to I have arrange to apply £50 credit as a retention on your account and it will be applied after 6 months on your account if you stay with us for next 6 months.

    Please contact us should you need any help in the future and thank you for contacting British Gas.

    We're listening, so tell us what you think - if you've got a moment please complete my survey to let me know how I've done.

    Kind regards

    Ketan Damle

    Customer Service Advisor - Looking after your world

    We've delivered on our promise and responded to your enquiry within 24 hours.

    Your enquiry ref: 4965984
    I'm sorry but this is complete Bull. You are making enough profit that you shouldn't have to pass on any costs to the customer maybe you should reduce the amount you pay your share holders/ directors and not punish your customers further at a time we are struggling to survive.

    I for 1 will be looking for NEW SUPPLIER.

    1. Quite right!

      Apart from anything else:
      a) Energy companies claim about half their cost is the wholesale cost of gas. i.e. a pass-through cost (the postman doesn't take a percentage of the value of a letter: 5p for a birthday card, £50 for a £1000 cheque from the premium bonds).

      b) The big energy companies are vertically integrated. That means they buy most of their wholesale energy from themselves. Since 2005 they started shifting profit from retail to wholesale - i.e. they charge themselves a lot for the wholesale energy, and then claim their retail margins are tiny.

      c) Energy companies claim our bills are lowest in Europe. When they say this, they include government taxes. Take out the taxes, and our bills are average for Europe.

      And this is inspite of the fact that IEA figures state Britain is largely self-sufficient on natural gas (which, together with coal, generates most of our electricity) - in contrast to other European countries who have to import their gas.

  2. Could you confirm if the gas prices are spot or for what period the purchase is for? As far as I know there is no single wholesale price which could be plot in such a way other than spot, which means very little. Neither Consumer Focus or you know what anyone paid for gas for what period? Ltd companies are obliged to make a profit. Your anger is not unwarranted but it is misguided.

    1. "there is no single wholesale price which could be plot in such a way". Isn't that the problem? Energy companies keep this hidden and OFGEM lets them get away with it.

    2. Buying commodities is far more complicated than spot prices. That's the role of futures contracts and hedging. So spot prices are meaningless, it really all depends how good the trading rooms of the purchasers have been over the contract periods they're buying/selling at.

  3. Anyone tired of profit-hungry energy suppliers may want to consider joining a cooperative. Use this link and get £25 off your first bill.

  4. Surely, if the figures are true, and no other cost has come into play (subsidies for insulation for instance), they prove a cartel, otherwise energy companies would boost their sales by undercutting each other.

  5. The heating oil profit margins are astronomical - prices have risen x6fold in the last 15 years.Add to this the fact that country dwellers are deprived of the chance to combine gas and electricity providers and we are doubly disadvantaged.Strange how the price rises in winter and falls in the summer......

  6. Just switch. If consumers switch on mass they'll become more competitive.


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