Friday, 17 February 2012

Big 6 Energy Companies May Face Fuel Bill Caps.

Another week, another attack on the pricing policies of the "Big 6" energy companies. The regulator Ofgem is considering imposing a cap on fuel bills for the first time in a decade after an unprecedented attack calling them, 'greedy', 'bad' and 'lazy'. 
I could attempt to detail all of the factors and the justifications related to the continuing price rises and subsequent profits, but I suspect you don't need me to. Just take a look at the graph below detailing energy company retail prices with the wholesale (NBP) prices.

You don't have to be a high flying market analysis to see their margins are rising.

We can see that commodity prices are rising. We all know that these prices are affected by consumer demand, currency fluctuations and market conditions. If raw materials rise in price and companies can't find more efficient ways of manufacturing or distributing the product the consumer will inevitably end up paying more for the product. 

That isn't what's happening with energy costs. When gas prices rise, the companies increase their customers bills, but when prices fall they don't reduce them. Or if they do, it's at a smaller rate. 
EDF operating profits rose by 8.5 per cent last year to almost £1.6billion. This is the equivalent of £427 for each of the 3.7m UK households to which the French-owned company supplies gas and electricity.

Where will it all end? Realistically there can't be a never ending rise in prices and related profits. The consumer must be getting to the point where they won't be able to heat their homes at the prices charged. The big 6 could kill the golden goose which is laying their profitable eggs stone dead. 

I'm realistic enough to accept that these companies need to make a profit. I'm unhappy that they are causing misery in so many families due to their blind pursuance of the biggest profit possible. What's the rush? Is the market and the consumer going to disappear?  

My suggestions? Cap prices based on wholesale costs. Simplify tariffs. Introduce competition between the energy companies.


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