UK Gas Prices: The Rip-Off Continues

So, as the dust settles over the last gas price rise we can look back and see if the reasoning behind it was sound.

As I remember the last price rise  (of around 10%) was to....

• Cope with rising wholesale prices,
• Pay for some unspecified rise in costs associated with gas transport
• Pay for renewal of capital equipment.

It was (I am told) absolutely nothing to do with raising huge and unreasonable profits.

Hmmmmm

Wholesale prices

Look at this graph.

(graph from Catalyst Energy Solutions. Here)

The graph looks a  bit of a dogs breakfast because it show several years of wholesale (or spot) gas prices. Each colour is for a different year. Notice that the wholesale price to when the graph ends (Oct 2012) is little changed since December 2010.

So even from this you have to ask: Why the price rise? But look back further. Notice the whole sale price COLLAPSED at the end of 2009, so the rise they keep droning on about actually arises from a large price decrease in 2009. Wholesale prices in Oct 2012 are not much different to Jan 2009.

So, has the gas price today in January 2013 massively risen since the end point on the graph (Oct 2012) ?

No. The wholesale price today  is much the same as the end of October which is much the same as January 2009. But it gets worse. If you go even further back, beyond this graphs resolution you find the wholesale gas price was similar or higher than today way back to March 2008. (see future post)

Of course, wholesale gas only accounts for about 55% of the retail price anyway. So if the wholesale price is flat, then to get a retail price rise of 10%  the price of gas transport and customer servicing must have risen by 22%. Wow!

Even though these companies then go on to whine about making large capital investments they still manage to produce an enormous, and rising year on year profit. Clearly the concept of using your profits to invest in the future is alien to the Utilities.

Why can they do this? Because rather than operating as competing companies, their operation looks more like that of a cartel. They pretend to compete yet actually protect their combined markets at the cost of the consumer, and the government lets them get away with it.

The words “arrogant rip-off” come to mind.

Fracking in Lancashire

So it looks like Cuadrilla has stuck big in Lancashire. Loads of Natural gas. Some reports say enough to meet our energy needs for the next 50 years. (see here)

A great many of the Great Green disciples of Huhne are lining up to whinge and moan about extracting this gas.  But really they ought to do their basic research first and then think things through. (Oh, how I wish!)

Let us see how fracking for gas relates to their BIG idea. aka Wind Turbines. Wind turbines are, after all, truly BIG. Large in size but unfortunately minuscule in ability.

We know, (and they know) all about intermittency and unreliability etc. often expounded on in this blog, I won't go on about it any more here than just to say that even the most inflexible Luddite supporter of these things has to confess that they need considerable backup for when the wind doesn't blow.

Because Wind Turbine output is so unpredictable and massively variable over short periods of time, the forms of backup are limited. The backup is mainly limited to Open Cycle Gas Turbines, although some Closed Cycle Gas Turbines can be used at a pinch for less violent changes in output.

What do you power OCGT or even CCGT on?  Yes. That's right. Gas.

So if (God forbid) we carpet our country with these useless wind turbine monsters, where will the gas come from for the necessary spinning reserve?

Magic?

Or perhaps we could just get the whole population chewing on Mung beans for a fortnight and then plumb them into the nearest OCGT.

Those two suggestions are far more lucid and coherent than anything you will find coming out of the Green party or their comrades.

Of course, Fracking needs to be controlled and monitored. But the ridiculous, ill informed and politically biased charade of mortified concern that is being pumped out by the Greens  and others is simply absurd.

Now, what about my back yard?

Well, I live in Purbeck in Dorset. We currently have the largest on-shore oil field in the UK. It is quite likely that the Kimmeridge shale will also hold a considerable amount of gas.

Over many years, the oil field has performed impeccably. There is no reason to assume that any gas extraction would be any different.

If, you are going to build gas power plant you might as well use it efficiently. Then you can simply dispense with the wind turbines all together.

Actually, I would rather have nuclear plant, then you don't need gas. (at least for electrical generation). But either way we can dispense with the  fairy-land lunacy that is the wind industry.

So, if it is a choice between carpeting Purbeck with (as some suggest) 42 huge and useless wind turbines or have a few fracking gas extraction wells, give me the wells any day.

Time to Break the Energy Cartels

Go onto any price comparison site. Select one of the big utility companies. Have a look at how many different tariffs there are.

Here is the result of one quick scan I did for electricity tariffs. It includes dual fuel, but only on a variable direct debit.

• NPower have 29 different tariffs
• British Gas have 58 tariffs
• Scottish Power 15 tariffs
• EON have 10 tariffs
• OVO 54 tariffs

Don't forget this is only variable direct debit. God knows how long the full list of tariffs is.

This is not done for "customer choice" this is done to obfuscate and confuse. It is a deliberate policy of making things difficult to understand so as to undermine the customers visibility of what they are really paying.

But even forgetting about the massive casquade of apparently different though essentially identical tariffs,  there are even worse liberties taken with consumers.

Take some elderly relatives of mine.

They are hardly infirm and are still very much in command of their faculties.

But they don't get on with the internet and they come from a period of time when Utility Companies were trusted and held in high regard. A bit like the banks (need I say more?)

Needless to say, these fine people are inevitably on a high tariff.

Nobody at Npower has told them that they could save £150 simply by changing their current tariff for another virtually identical one.

But it gets worse.

Npower have recently increased their monthly direct debit.

They have done this even though NPower currently owe them £400.

Thats is a continual and increasing overcharge worth currently over half their annual bill.

A free loan from the old to the averacious bastards at another greedy energy utility.

This is shameful. Dare I say for any normal business it would also be regarded as immoral. An deplorable activity bordering on criminality.

Energy Utilities are given a virtual profit guarantee and an easy market.

I don't think that it is too much to ask for them to behave in a moral and decent manner.

Until this scandal is addressed, more and more people are going to be forced into energy poverty. More and more of the old and vulnerable will die for the lack of a little heat.

Just so the utilies can continue amassing their huge immoral fortunes.

This has got to stop.

But is there anyone in government with the balls to address the problem?
I have my doubts.

The Crime of Economy 7

First of all let me make this clear the concept of the Economy 7 domestic electricity tariff is excellent. It is just the execution that is flawed. (Wikipedia description here)

Economy 7 is a scheme dating from the 70's. Basically the consumers electricity is provided on two separate tariffs. The daily tariff is more than the night-time tariff. The night-time tariff is significantly lower than the median price. This is because during the small hours, electricity demand is low.

At night, electricity  generated from base load generation is often barely required and much generation capacity is wound down to minimum (and inefficient) levels.  During these quiet periods, generators sell their electricity at knock down prices. The theory of Economy 7 is that consumers can cash in on these quiet periods by using cheap electricity at unsocial hours.

Initially the driving force was to provide energy for night storage heaters. They  used the surplus night time electricity to provide heat during the day. Often derided, night storage heaters do not really deserve their dreadful press. True, they do have their limitations. But night storage heaters were the first practical example of domestic energy storage - which has yet to be beaten.

The practical problem with Economy 7 is that it impacts on the huge profits made by the utilities selling it. If the electricity at night is sold at half the day time tariff, even after winding their margins up, the utilities still earn less from each KW/hr than they would from a flat tariff. Utilities don't really care if the night-time energy goes to waste. They also know that most Economy 7 customers have night storage heaters and have no choice but to use Economy 7.

To ensure their (guaranteed) profit stays as high as possible, the utilities charge Economy 7 customers double for day time electricity so the 7 hour night period price can be halved. An Economy 7 customer needs to use at least 40% of their electricity during the night period which is 29% of the day. They need to do this just to break even.

If there was any common sense to this we would all be on Economy 7 tariffs, but at fair differentials not ones dictated by greed.

More of us would use washing machines and other heavy load appliances during the slack periods. This would make better use of our available electrical resources. There would be less waste, and actually less wear and tear on the infrastructure of the grid.

But the massive profits of British Gas, RWE nPower and the others would take a (slight) knock. But no government has yet had the guts to suggest the utilities should behave responsibly.

So don't expect ground-breaking Economy 7 deals any-time soon.

British Gas: Fair Profit Or Exploitation?

Since the peak gas price in 2008 British gas has reduced its prices by 17%. But Since the peak gas price the wholesale price of gas has fallen 40%. See Here

British Gas' profit this year has soared by 98%. In the first half (i.e. 6 months) of 2010 British Gas' profit was £585 million. So it would suggest that their profit this year is going to be in excess of £1 Billion.

All utility companies are in a steady business (and trusted position) of providing our industry and people with a regular vital resource.

So how the hell can one of them suddenly double its profits?

I don't expect any of the other utility companies will go bust any time soon. So there is only source for that huge profit. That source is you, my grubby derided little English consumer.

The whole basis of the privatisation of the utilities was to get rid of a self serving "jobs-worth" monopolistic culture and replace it with a set of responsible and efficient companies.
Their rivalry would guarantee that costs to the consumer were kept down. These new private companies were trusted with providing a strategic national resource. In exchange they were virtually guaranteed a profit.

But today these companies now act as if they are just a multiple set of heads on a monstrous Hydra monopoly. Essentially the Gas and Electric utility industry has all the hallmarks of being an ugly and viciously exploitative hidden cartel.

British Gas and its buddies faff around, pretending there is competition between them. They swap a few hundred thousand consumers to make it look good but they all indulge in conning the public with discounts as summer approaches. Then they hit them with massive rises as winter (and the need for gas) rises. Now Britsh Gas is leading the pack with a shameful 7% rise. The others will follow soon no doubt.

They may be an improvement on the old nationalised cash haemorrhaging relic they replaced. But they are still very far from offering the public a real competitive choice.

Of course, there is nothing wrong with making a profit, even a healthy profit. Especially if you company provides what the customer wants.

But British Gas like the other utility companies do not provide what the customer wants. It provides what the customer needs. They have been given this business on a plate in exchange for acting responsibly.

Double profits in a dynamic cutting edge producer of goods that people queue up to buy is really good.

Double profits in a utility company is a disgusting exploitation of a trusted position.

British Gas - Won't Get Fooled Again

So, my grubby little English mates. Some of you have just got shafted by our friends (of whom we have none) in British Gas.

A 7% rise non the less.

I heard their spokesman whinge on about wholesale gas prices going up. He did not mention the year on year BG profit rise of 98% (yes nearly doubling year on year - see here

Neither did he mention that in the last couple of years, wholesale gas prices have fallen massively from their peak in 2008 (see here)

Needless to say, I expect the other festering corporate monsters that inhabit the Gas and Electricity sector are greedily eyeing your pay-packet as you read this.

What we need here my grotty, snotty fellow little Englanders is either a little less of the bloated monopolistic suppliers running their cosy cartel or more regulation. More regulation, as you probably know is something I would wish to avoid.

Personally I'd go for encouraging another twenty or so companies into the energy market, give them some tax breaks to get them going.

Make the bastards actually compete with each other . Oh how that would hurt!

Get some real competition into a market that currently has all the hall-marks of an ugly and malign Cartel