Won’t stop the fuckwits whining though

Aaaargh! The power companies are making massive profits!

Profits at Britain’s ‘Big Six’ energy suppliers are five times higher than they were in 2009 as millions of households suffer record bills for their gas and electricity, regulators revealed today.

Labour politicans launched fresh attacks on the Government over the cost of living tonight after Ofgem admitted competition in the energy sector “is not working as well as it could”.

Ofgem said the ‘Big Six’ – British Gas, Npower, Scottish & Southern Energy (SSE), Scottish Power, E.ON and EDF – made a combined £1.2 billion in their household supply businesses last year, up 75 per cent on 2011 and five times higher than £221 million in 2009.

Profit per household was £53 in 2012, against just £8 three years before.

Isn’t it terrible?

Average household dual fuel bill is what, £1,200 or summat? So they’re making 4% of turnover in profits.

Terrible, terrible, gouging there.

This is also interesting:

Ofgem conceded that part of the reason for the dramatic extent of the profits jump since 2009 was that three of the Big Six’s household supply operations were loss-making four years ago, Npower, EDF and E.ON.

Oh, four years ago half the industry was loss making. Now they’re all profitable. So, err, the total profit is likely to have risen.

Not that this will stop the fuckwits whining about it all.

26 comments on “Won’t stop the fuckwits whining though

  1. Thank you for pointing out that the massive cut of £53-00 per household the energy companies take is actually just about fuck-all. How do you expect people to invest in an industry that gives such low returns?

    Imagine the cost of energy if the power companies are nationalized and run by labours favourite appointees, coke-snorting, meth loving, crossdresser, hooker loving, fraudsters….

  2. AFAIK, they are vertically integrated and have high margins (>20%) on the generation (side which supplies the distribution side, which, as you note, has low margins).

  3. As MMJ suggests it’s the generating bit that the real complaint is about, although you wouldn’t know from much of the reporting but it is suggested near the end of the Telegraph article.

  4. Massive company profit on your bill: 4%
    Massive State profit on your bill (VAT): 5%

    Who is ripping you off?

    Oh, and add in various green scams and wheezes mandated by government: an extra 3-4%.

    Who is ripping you off?

  5. @ MMJ and ukliberty
    Centrica (holding company for British Gas) reported in its latest interim report that its gas-fired power stations made a loss in the first half of 2013 despite the cold weather (albeit the UK electricity-division overall made a profit because they were covered by profits from nuclear power stations and subsidies to the windfarms it operates. Less than one-quarter of the electricity it generates is sold to other group entities (so it is *not* highly integrated); margins on sales are high but the return on net assets is less than 10%.
    The facts are easy to access.

  6. And people do not complain about the local corner shop, with profits percentage usually much higher than the gas companies….

  7. john77, iirc profit margins on the generating arms across the Big Six have been 20-25% over the past several years. I don’t know what the actual return is. I don’t find it easy to tell. Nor have Ofgem or Parliament’s energy committee, they say.

  8. ukliberty..there hasn been plenty of comment lately about how eon and RWC do not look in good financial shap…

  9. @ ukliberty
    I beg your pardon? There is a point to your ignorance? Is it because you don’t want to know?
    British Gas just sent me an electricity bill which gives a breakdown: wholesale electricity costs 42%, transmission costs (regulated by Ofgem) 25%, green and social taxes 15%, corporation tax plus VAT 5%, operating costs 11%, BG profit 2%.
    So even if generating margin was 20% (which it is not for Centrica) Ed Millionaireband’s levies would still be 50% greater than all the corporate profits included.

  10. I’m not criticizing you, Tim, but as an American I hate hate hate seeing reference to Newspeak government agencies like oFgEm (not, I presume, pronounced UV-jem).

    I know from reading other British blogs that the “of” part is short for “office”, but I had to look up the “gem” part on Google. The first link is to oFgEm’s site, but the Google synopsis didn’t reveal what the “gem” stands for, and I had to scroll down past several other links to find out that it’s “gas and electricity markets”.

    It’s as though they’re deliberately trying to conceal the meanings of these acronyms, much as Orwell discussed with “Miniluv”, “Minipax”, and “Minitru”. I hope you’ll forgive me for having deliberately miscapitalized the agency’s acronym, but any time I see these joined-up words, I want to miscapitalize or mis-split them to force people to stop and think about the meaning of the words.

  11. john77, the point was that the profit margin across the whole business isn’t only 2% or 4% of the household bill; in your example it’s over 10%. And yes it’s smaller than taxes. But people are feeling the pinch and looking to reduce costs. In real terms household energy bills have risen since 2007, gas by 41% and electricity by 20%. People wonder why and the Big Six have failed to field a persuasive case. People wonder if the companies are ripping us off.

    The companies said it’s due to wholesale costs and green taxes, they only make a small profit of 2-5%. Green taxes aren’t their fault, everyone understands that.. What about wholesale? Turns out that a Big Six company sells itself energy. In the wholesale cost is another profit margin of 20-25%. So it’s not quite as simple as “look over there at the wholesale costs” is it? It adds to the distrust of the companies.

    We’re on fertile ground for nationalisation. Evidently you’re a superior intellect, by definition then many other people are not as clever as you – try to see things from their point of view. What are the cases being made to them? What are the ‘narratives’? What do they perceive to be their circumstances? Waving a bill or financial statement at them isn’t going to cut it, particularly if the picture you’re painting has something missing (in this case the real profit margin enjoyed by a Big Six company, not just that of its domestic supply business).

  12. @ ukliberty
    I said “if generating margin was 20% (which it is not for Centrica)” – so profit margin is *not* 10%. Centrica has recently stated that it expects its gas-fired generating plant to make a loss of £130m for 2013.
    As I have elsewhere, historic cost accounting overstates the profitability of capital-intensive businesses like generators because the depreciation charge is understated in proportion to the debasement of the currency since the plant was built. Centrica’s capital expenditure on tangible fixed assets last year was more than twice its reported depreciation charge. OK it is investing to grow in the USA but that is a relatively small minority of the group and over here it is a mature business so it can’t have doubled its historic rate of replacing and adding to assets. Depreciation is understated by a few hundred £million.
    Also a crude glance at the accounts will overstate Centrica’s margins because they include its share of British Energy’s profits but not its turnover, so even before correcting for understatement of the depreciation charge Centrica’s power generation side had a margin of 13.8% before interest and tax last year. Allocating the interest charge pro-rata to divisional net assets would reduce this to 8.9% pre-tax. Profits this year are lower. I don’t know where your 20-25% comes from but I *can* show you why the real answer is less than half that and that Millionaireband costs me *more than twice as much* as Centrica’s profits (including those from generation).
    Ed Millionaireband is blaming the “Big Six” distributors for a 50% rise in household bills claiming that they are ripping people off to make huge profits when less than 5% of the bill is the distributor’s profit.
    “People wonder why and the Big Six have failed to field a persuasive case.” For the last few years British Gas has shown on its monthly bills how they are made up; in its statement to the Stock Exchange it explained that it had to put up prices because its residential supply business had been making losses for several months. It *has* made a case but the media don’t want to listen because that would deprive them of a cheap and easy headline..

  13. Ed Millionaireband is blaming the “Big Six” distributors for a 50% rise in household bills claiming that they are ripping people off to make huge profits when less than 5% of the bill is the distributor’s profit.

    But not the whole profit of the whole business.

    I don’t know where your 20-25% comes from

    Ofgem, The revenues, costs and profits of the large energy companies in 2012.

    For the last few years British Gas has shown on its monthly bills how they are made up

    Do they still use the lightbulb? They had external costs including wholesale, transmission and taxes on the left, operating costs in the middle and then a little profit at the end. Again some of that wholesale cost is charged to the domestic supplier by a sister company and it includes a profit margin so it isn’t quite crystal clear is it?

    It *has* made a case but the media don’t want to listen because that would deprive them of a cheap and easy headline..

    The press didn’t create this story, they have run with it, because it coincides with the perception of their readers. I didn’t say the companies hadn’t made any case, I said they failed to make a persuasive case. Which, in evidence to Parliament’s committees, they happen to concede. The media isn’t their only outlet for information. As you said, these days they also produce breakdowns on the bills. They have websites and email addresses. They have snail mail addresses and envelopes.

  14. Er, you cannot have got “20-25%” from the Ofgem report because it isn’t in there. Ofgem states that the aggregate margin was 19.9%. It also states “It can be misleading to directly compare these two margins. The risk associated with supplying gas and power is much smaller than the risk attached to, and capital employed in constructing and operating a power station. Higher risk attracts higher returns. Higher margins also help to finance investment in the generation segment. This means that while the margin is higher, the economic profitability is not necessarily so.”
    You seem to be quoting the BBC report which misquotes Ofgem.
    Also Ofgem has committed a schoolboy howler by dividing Centrica’s energy generation profit *including* its share of British energy by its revenue *excluding* its share of British Energy, i.e. Ofgem’s figure of 19.9% for the aggregate of the “Big Six” is too high.
    Next point: Centrica power, Centrica’s energy generating division’, sold £275m to other divisions amounting to just over 2% of the energy supply businesses’ sales, so the division’s pre-tax margin of 9% makes up 0.2% of the electricity bill. So you are saying that British Gas should say on the bill “generating profit 0%, distribution profit 2%” rather than “our profit 2%”. NO British Gas is quite clear in showing “the whole profit of the whole business”: the lack of clarity in not specifying separately the generating profit exists only in your own imagination.
    It is not that I have what you regard as a “superior intellect” – it is that I actually look at some of the data.

  15. Er, you cannot have got “20-25%” from the Ofgem report because it isn’t in there. Ofgem states that the aggregate margin was 19.9%.

    2012 19.9
    2011 24.4
    2010 21.9

    19.9 is pretty close to 20 isn’t it? And 24.4 to 25?

    You seem to be quoting the BBC report which misquotes Ofgem.

    I’m quoting the Ofgem PDF.

    So you are saying that British Gas should say on the bill “generating profit 0%, distribution profit 2%” rather than “our profit 2%”.

    I’m not sure what they should put on the bill. My claim here originally was that the complaint is about the profit made by the entire business, not just the domestic supplier.

    NO British Gas is quite clear in showing “the whole profit of the whole business”: the lack of clarity in not specifying separately the generating profit exists only in your own imagination.

    It’s not just my imagination, that’s the point, that’s the context to this, that many other people ‘imagine’ it, including reports made to Ofgem, Which?, Consumer Focus, Citizen’s Advice, Parliament’s energy committee, that’s why there is a media narrative that the companies are ripping us off (note: I have not claimed they are in fact ripping us off, perhaps this is confusing you) and Ed Miliband can suggest price freezes etc.

    It is not that I have what you regard as a “superior intellect”

    O RLY.

  16. @ ukliberty
    You are wasting my time. You falsely claim that the profit margin “across the Big Six have been 20-25% over the past several years.” I point that the margin for the biggest of those is nearer half, so it cannot be the case across the Big Six. You falsely claimed that it is from the Ofgem report when you were merely misquoting a phrase from the BBC’s misquotation of the Ofgem report (taking one phrase from one sentence and one from the next sentence of the BBC report and pretending that the conflated item was from Ofgem was a dead give-away). When I point out that it is not in the report and the figure in the report is wrong (with the reason why it is wrong) you then say the erroneous figure given for the average is *not much* below the bottom limit of the range that you quote. Since Ofgem’s figure for Centrica was *81% greater* than its *pre-interest* margin, the true number for *pre-tax* margin must be very much below the bottom of the range.
    As for “O RLY” – you are missing my point. I actually looked at the data instead of just media reports. I don’t think that makes me a superior intellect but if you do, well …

  17. You falsely claimed that it is from the Ofgem report when you were merely misquoting a phrase from the BBC’s misquotation of the Ofgem report (taking one phrase from one sentence and one from the next sentence of the BBC report and pretending that the conflated item was from Ofgem was a dead give-away).

    I suggest you don’t try to become a detective. I hadn’t seen the BBC report before my post at November 26, 2013 at 10:50 pm, so I couldn’t have misquoted it. The figures which I just quoted at 11:13 pm are on pages 1 and 7 of the Ofgem report, which I didn’t precisely recollect when writing the earlier post.

    page 7: Table 3 shows how profit margins across the six large suppliers were 22.5% in 2009 and fell to 21.9% in 2010. Profit margins then rose to 24.4% in 2011, and fell again in 2012 to 19.9%.

    Table 3: Generation profit margins
    Profit margin in generation
    2009 22.5%
    2010 21.9%
    2011 24.4%
    2012 19.9% [fairly close to 20% wouldn't you say?]

    page 9: Figure 7 shows the revenues, costs and profit margins in generation and the four supply segments, summed across the large energy companies. The average profit margin for overall supply to domestic and non-domestic customers was 3.6%. It was 19.9% for generation.

    If Ofgem is wrong, fine, but do argue with them instead of / as well as wasting your time with me, and do note that this is what Ed Miliband, the energy committee etc are “imagining” from.

  18. Guys, guys, whats important to me here is:
    British Gas – whats their (not centrica or anyone else’s) profit margin? Whats the profit margin of each of the other RETAIL arms?
    Not really concerned about generation or industrial arms sorry.

  19. @ Martin Davies
    You can read it off your bill – last page. British Gas electricity 2% after tax: not clear whether it rounds to 2% or 3% pre-tax. British Gas gas more profitable: 7% profit because it has lower gas purchase costs than its competitors (contrary what some people think Centrica does not want to overcharge on transfer prices since upstream profits pay tax at 62%).
    In 2012, when demand was boosted by a long cold winter, Ofgem says average profit margins *before interest* was 4.3% on retail supply. That included a pre-interest estimate of 6-and-a-bit% for British Gas with EDF less than 1%, Eon and RWE between 2% and 3%, SSE and Scottish Power between 4% and 5%, so you can presumably knock a couple of % off each those for the difference between EBIT last year and profits this year in line with British Gas.

  20. @ ukliberty
    “john77, iirc profit margins on the generating arms *across the Big Six” have been 20-25% over the past several years. I don’t know what the actual return is. I don’t find it easy to tell. Nor have Ofgem or Parliament’s energy committee, they say.”
    BBC says “…profits in generation and supply *across the half-dozen firms* …power generation profit margins at the firms fell from 24% in 2011 to 20% in 2012″
    Ofgem says “total profits across supply and generation” then gives EBIT as 19.9% and provides data to show that overall pre-interest margins are about 7%. ukliberty then argues that overall margins, after interest, are 10% or so.
    Ofgem never mentions return on capital, let alone saying they don’t find it easy to tell. The only mention of the word “returns” in the Ofgem report is on page 9 “It can be misleading to directly compare these two margins. The risk associated with supplying gas and power is much smaller than the risk attached to, and capital employed in, constructing and operating a power station. Higher risk attracts higher returns.” Which can only reasonably be interpreted as referring to margins since ROCE is *lower* (actually much lower) for generating than for supply.
    Correlation between ukliberty and BBC – noticeably; correlation between ukliberty and Ofgem – tiny to slightly negative.
    ” … this is what Ed Miliband, the energy committee etc are “imagining” from.” Since Ofgem published its report on 25th November Ed Miliband must have a rather good crystal ball on 23rd September. It is just a tiny bit more believable that his soundbite followed British Gas’ price rise (which was accompanied by a statement that their residential supply business had been losing money for months).

  21. ukliberty then argues that overall margins, after interest, are 10% or so.

    False, I said “in your example it’s over 10%.”

    Since Ofgem published its report on 25th November Ed Miliband must have a rather good crystal ball on 23rd September.

    The only new figure I quoted above is the one for 2012; Ofgem has previously given the figures for 2009, 2010 and 2011.
    e.g Chapter 3 here has them:

    2009 aggregate margin 22.5%
    2010 aggregate margin 21.9%
    2011 aggregate margin 24.4%

    http://www.publications.parliament.uk/pa/cm201314/cmselect/cmenergy/108/10802.htm published 16 July 2013

  22. “False, I said “in your example it’s over 10%.”
    After I had shown that it was less than 10%. If that is not arguing, what is it?
    And it now takes Ed Miliband ten weeks to read a report?
    I’m giving up on this.

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