As we’re constantly told to put on more jumpers, are energy companies pulling the wool over our eyes?
The House of Commons Energy and Climate Change Committee (ECCC) have today published a report into energy prices, profit and poverty. The report, as covered by most major news providers, suggests that Ofgem are failing the public by not ensuring the Big Six energy companies are being transparent enough over their profits. The Big Six are E.On, SSE, British Gas, Npower, EDF and Scottish Power. (I won’t be discussing fuel poverty in this post, so if that’s what you’re here for, I suggest you click on the big green escape button!)
There are many reasons that profit reporting is a complex business, but for Ofgem to need a forensic accountant to understand the statements from the energy companies is astounding, and further proves that neither Government nor Ofgem are putting sufficient pressure on the Big Six to improve. As Energy UK’s chief executive rightly points out in the BBC article, energy companies have come a long way, and they do publish their accounts and provide Ofgem with everything it asks of them. So is it Ofgem not asking the right questions, or is it the energy companies doing as little as possible to remain large and powerful?
The list of recommendations in the ECCC report includes:
1. Standardise the presentation of their bills to make it easier to understand bills and compare prices (for example on a price comparison website);
2. Identify the various components which make up the costs of the bill (i.e. wholesale price of fuel, costs of supply (i.e. transmission, distribution and metering), the costs of UK/EU policy (including support for low-carbon/renewables and energy efficiency schemes) and company margins (i.e. operating costs and profit);
3. Express price changes in pounds and pence as well as percentages.
On purely personal experience I have the following comments on these recommendations.
1. On the standardisation and easier to understand bills – couldn’t agree more. However, when we recently signed up to a two year capped price plan (Scottish Hydro), when the paperwork came through it couldn’t have been clearer what we were paying per unit, what we were paying per day, and how that compared with all the other regions that our supplier also supplies. Easy and simple to read. Our bills are less easy, but we manage, then again the two of us in our house are both relatively clued up on these things.
2. We had a letter earlier this year from a previous supplier (Scottish Power) about their price increase, and on a separate page they had outlined what each pound of our money went on, which included generation, distribution, investment and costs of improvements to the grid – 5p apparently.
3. This could only work as a comparison per unit and per day. If prices go up, occupants could change their behaviour and use less, if they are struggling with bills. So I wouldn’t want a company to say to me “Your bill will go up by X% and £Y”. I would want them to say “Your daily fee will now be charged at £0.03 more per day, taking it to £0.285 per day, or £104 per year”.
Politics
It should not be forgotten that energy companies are working in the dark a little (pun totally intended) as the Energy Bill and Electricity Market Reform (EMR) is not yet finalised. The political timetable is much shorter than the timetable of the energy market. The Energy Bill amongst other things has the main aspects of implementation of EMR, and this is currently in the House of Lords. In other words, it’s not finalised, and companies can’t rely on it staying the same as in draft form, so cannot use it to plan ahead.
A second aspect of politics playing a key role is that the energy companies are struggling to get investment on projects that go beyond 2027, when the Renewables Obligations current price ends. Projects are needed beyond 2027 to maintain reliable supply, a key requirement of the Energy Bill, but the price of the “fixed price certificate”, which will replace the RO, won’t be announced until 2014/15. CEOs cannot get funding from their boards or external partners as they cannot tell them how much the generation will bring them. So maybe Government could do a little for the energy companies and speed up the process or provide some sort of assurances.
And finally…
Let’s not forget that our energy companies are incredibly important, and they know it. We need them to have profits. We need them to invest in improvements in the national grid, enabling integration of more renewables and more localised supply. We need them to be able to ensure reliable supply for the short, medium and long term.
I know it sounds like I’m soft on energy companies, when in reality I’m the first to complain about corporations and evil companies after maximum profit no matter the cost to the customer, but I also hate confrontation and tend to try to see the good in everyone so I try to see the situation from their side. The other side of the debate is us. The energy users. We also need to take responsibility. We should be using less. We should be using our appliances when electricity is cheaper, and smoothing out demand.
For those of us who are of the ‘geek’ persuasion, we have the Grid Carbon app on our smartphones.
The House of Commons Energy and Climate Change Committee (ECCC) have today published a report into energy prices, profit and poverty. The report, as covered by most major news providers, suggests that Ofgem are failing the public by not ensuring the Big Six energy companies are being transparent enough over their profits. The Big Six are E.On, SSE, British Gas, Npower, EDF and Scottish Power. (I won’t be discussing fuel poverty in this post, so if that’s what you’re here for, I suggest you click on the big green escape button!)
There are many reasons that profit reporting is a complex business, but for Ofgem to need a forensic accountant to understand the statements from the energy companies is astounding, and further proves that neither Government nor Ofgem are putting sufficient pressure on the Big Six to improve. As Energy UK’s chief executive rightly points out in the BBC article, energy companies have come a long way, and they do publish their accounts and provide Ofgem with everything it asks of them. So is it Ofgem not asking the right questions, or is it the energy companies doing as little as possible to remain large and powerful?
The list of recommendations in the ECCC report includes:
1. Standardise the presentation of their bills to make it easier to understand bills and compare prices (for example on a price comparison website);
2. Identify the various components which make up the costs of the bill (i.e. wholesale price of fuel, costs of supply (i.e. transmission, distribution and metering), the costs of UK/EU policy (including support for low-carbon/renewables and energy efficiency schemes) and company margins (i.e. operating costs and profit);
3. Express price changes in pounds and pence as well as percentages.
On purely personal experience I have the following comments on these recommendations.
1. On the standardisation and easier to understand bills – couldn’t agree more. However, when we recently signed up to a two year capped price plan (Scottish Hydro), when the paperwork came through it couldn’t have been clearer what we were paying per unit, what we were paying per day, and how that compared with all the other regions that our supplier also supplies. Easy and simple to read. Our bills are less easy, but we manage, then again the two of us in our house are both relatively clued up on these things.
2. We had a letter earlier this year from a previous supplier (Scottish Power) about their price increase, and on a separate page they had outlined what each pound of our money went on, which included generation, distribution, investment and costs of improvements to the grid – 5p apparently.
3. This could only work as a comparison per unit and per day. If prices go up, occupants could change their behaviour and use less, if they are struggling with bills. So I wouldn’t want a company to say to me “Your bill will go up by X% and £Y”. I would want them to say “Your daily fee will now be charged at £0.03 more per day, taking it to £0.285 per day, or £104 per year”.
Politics
It should not be forgotten that energy companies are working in the dark a little (pun totally intended) as the Energy Bill and Electricity Market Reform (EMR) is not yet finalised. The political timetable is much shorter than the timetable of the energy market. The Energy Bill amongst other things has the main aspects of implementation of EMR, and this is currently in the House of Lords. In other words, it’s not finalised, and companies can’t rely on it staying the same as in draft form, so cannot use it to plan ahead.
A second aspect of politics playing a key role is that the energy companies are struggling to get investment on projects that go beyond 2027, when the Renewables Obligations current price ends. Projects are needed beyond 2027 to maintain reliable supply, a key requirement of the Energy Bill, but the price of the “fixed price certificate”, which will replace the RO, won’t be announced until 2014/15. CEOs cannot get funding from their boards or external partners as they cannot tell them how much the generation will bring them. So maybe Government could do a little for the energy companies and speed up the process or provide some sort of assurances.
And finally…
Let’s not forget that our energy companies are incredibly important, and they know it. We need them to have profits. We need them to invest in improvements in the national grid, enabling integration of more renewables and more localised supply. We need them to be able to ensure reliable supply for the short, medium and long term.
I know it sounds like I’m soft on energy companies, when in reality I’m the first to complain about corporations and evil companies after maximum profit no matter the cost to the customer, but I also hate confrontation and tend to try to see the good in everyone so I try to see the situation from their side. The other side of the debate is us. The energy users. We also need to take responsibility. We should be using less. We should be using our appliances when electricity is cheaper, and smoothing out demand.
For those of us who are of the ‘geek’ persuasion, we have the Grid Carbon app on our smartphones.
This app gives up to the minute information on UK grid demand and supply (and carbon intensity of the grid at that moment in time depending on the energy supply mix). So why not wait to do the washing until the demand starts to drop, or it gets windy (fair enough – easier said than done, but I try). It’s worth noting that this screen shot on the Android Play store was taken in March 2011. In recent months the gCO2/kWh has been nearer 400, and the little map of mainland UK has turned a sort of greeny-brown colour instead of red! Those changes aren’t because we’re using less electricity. We’re actually using more. So the change has come through legislation, through renewables, and all of that has had to be done through the energy companies.