Talk Morgan Forums Community The Malvern Arms Centrica and energy costs

Slight clarification?

"SSE – set up in 1998, it was a merger of two Scottish electricity companies that had already been privatised earlier in the 1990s"

I was doing work for them just post merger and understood it to be Scottish & Southern Electric who was also my provider at the time. I was living in Farnham and doing the work in the Southampton office. I asked where a person was and was told room 4003. I went wondering and could not find it. I was then told it was in the main office in Perth.....ahem.

I think most energy call centres are on the same corridor as room 101

Centrica is a private company ie quoted on the LSE. Its financial performance over the years has been mundane at best. It sells its gas at market prices just as you would sell your house or car. The real culprit is Putin and the Russians.

I cant imagine that any of the energy companies are happy with the situation. Their image is being shredded through no fault of theirs and there is no practical way they can do anything about it. Difficult to see what the government can do other than appease Putin.

So how ome they are making the biggest profits at this time?

One way the energy giants get profits is due to the dividing up of the sectors. Big profits in the exploration, extraction processing then the retail side trades at a loss. The top end company gets big profits whilst the bottom end to consumers makes losses/ small profits. An analogy might be supermarket loss leader lines. The choice to make profit away from the consumer end is a “ hidden” strategy. The lower end ( prices to Joe Public) end up buying from the earlier stages at controlled price to suit the company. The market price of, say, crude oil isa controlling factor. Reduce supply to inflate the $ per barrel to maintain profit at that end of the chain.
It does amaze me that energy is such a strategic item and yet it seems to be less than highly managed. Short term “deals” and thinking lead to volatility that can be reduced. Politicians being lobbied by vested interests with strong lobbying power? There is a case for state intervention to such strategically important sectors. Not necessarily nationalisation but state backing. Nuclear power as a baseline supplier with Government oversight to maintain a suitable level.
What do we get? Anti nuclear and privatisation influence that fogs the basic need for energy.

Straightforward supply and demand. If Putin reduces supply to the point where it is below demand, as he has done, then price goes up. If the reverse happens, as it did just a few years ago, then the price falls and suppliers go bust as indeed the frackers in the USA did in large numbers.

Putin in fighting a war, not in the UKraine but in Europe. He is busy damaging European economies and seriously weakening us - almost a mirroe image of what Regan did to the evil empire when he outspent them on armaments and they collapsed trying to keep up.

As for Sospans idea of segmentation, the MMC or whatever they are called now has just published a report on petrol prices which makes clear that that isnt the case. The refineries have been sold off or closed down and it is what remains that have increased margin mosy - not the retail sales and not the exploration bit either. But then the reason the refineries were sold off was that for ages they made poor or non existant returns. See https://www.gov.uk/government/news/review-finds-cause-for-concern-in-some-parts-of-road-fuel-market

The core issue here is that we have put ourselves in the hands of a fascist dictator Putin. He is pulling our tails and we have been naive in thinking that everything can be nice and friendly. We are doing the same with China having exported much of our hi tec manufacturing there. What will happen when at some point we have a conflict with them, say when they invade Taiwan? Shutdown of major industries when we cant get electronic components?

If you sup with the devil use a long spoon!

What I'm failing to understand (my apologies) in your answer Howard is how the rise in costs of a barrel of oil from russia ( which reflects straight through to the consumer ) results in a bigger profit for centrica...? They have to buy it don't they?
I'm so sorry to be slow about this but I just can't grasp why
A) the price to consumer isn't lower and centrica profit maintained at previous levels
B) the gov doesn't step in as reps of the population

Nick

Continuous operations 2018 2019 2020 2021
Turnover 23,304.0 12,994.0 12,249.0 14,744.0
Operating profit (standardised) 1,332.0 465.0 1,405.0 (74.0)
Interest paid (net) (280.0) (251.0) (219.0) (191.0)
Other income/expense (458.0) (1,235.0) (1,784.0) 1,135.0
Pre-tax profit 575.0 (1,034.0) (577.0) 767.0
Taxation (333.0) (10.0) 145.0 (218.0)
Post-tax profit 242.0 (1,044.0) (432.0) 549.0
Profit for financial year 183.0 (1,023.0) 41.0 1,210.0

above are the audited centric figures for the last 4 years. I dont recall any public outcry at the losses in 2019 - except perhaps from the shareholders who own the company and who didnt get a dividend at all. Or in 2020 for that matter.

In any business, whether plumber or oil company, they will maximise profit for their owners as indeed is their duty. They do this by charging what the market will bear. Costs are irrelevant - you the consumer dont look at their costs when the market means prices are falling and the supplier is l,osing. You only think of them when prices are rising. Did you try to pay Centrica more in 2019?

question B is a different issue. On the surface it looks sensible because people are suffering but if the government were to do this and force a price in the UK lower than the market level, there would be supply issues big time. Many of the gas tankers from the middle east sail without a customer for the gas and only decide the port to land their cargo as the cargo owner does a deal at the best price he can get when they arrive. I've seen gas tankers anchored off Falmouth waiting a week or two for the best deal. Then there is the issue of subsidies and the EU. The government has chosen the best way of tackling the issue with an excess profits levy and payments to users but this still has issues. Can they levy charges on Total or Other foreign firms? Do they do it by nationality or by supply. Would the likes of Total supply at all if the UK government levied extra taxes on them that say the French government didnt?

P.S. The financial numbers were in eat columns in the draft but the software messed them up.

On a more practical level, my answer to gas prices is to go down to the foreshore, saw up for free a lot of fallen trees, and use the log burner all winter.

Its funny that having signed up for "renewable energy" tariff my energy bills are going up as if I am buying electicity from Putin!

I guess the good news about us all being poorer / colder this Autumn will be a commensurate reduction in CO2 output. But a 5x cost increase for heating / hot water is going to be REALLY difficult for many in society.