Obscene Energy Companies' Profits

Shouldn't the title be 'Energy companies obscene profits'? Word order is important. The question of the profits is a complex one. I favour the windfall tax but I'm aware that our pension funds benefit from the shareholder dividends.

So-called green energy (so-called because when you look into it, it isn't "green" at all) cannot be made without it costing a hell of a lot. So anyone who approves of net zero policies is being unrealistic if they object to high energy prices.

I am reading – and highly recommend – the philosopher, Alex Epstein's new book, Fossil Future. Philosophically it is a fantastic and, I think, ground-breaking book. Check it out.

Katie59

Because if it was true the high prices we are seeing today would be very damaging to established energy companies, enabling newcomers to undercut them when prices do fall. Forward trading in a free market is complex, we saw a lot of small companies go out of business because they could not buy energy to fulfil contracts, they certainly were not buying much forward.

The energy producers like EDF can price their own energy at a lower price to gain market share when there is a shortage, when there is a shortage they loose market share to spot traders with short term contracts..

Do you not like answering questions?

Because if it was true the high prices we are seeing today would be very damaging to established energy companies, enabling newcomers to undercut them when prices do fall. Forward trading in a free market is complex, we saw a lot of small companies go out of business because they could not buy energy to fulfil contracts, they certainly were not buying much forward.

The energy producers like EDF can price their own energy at a lower price to gain market share when there is a shortage, when there is a shortage they loose market share to spot traders with short term contracts..

Katie59

I doubt that most energy is bought 95% in advance, in normal times the margin between high and low is very small so it’s not really comparable. It’s the uncertainty that drives prices up, we don’t know what the supply is going to be next year, even when Ukraine is settled energy bought forward will keep prices high.

All companies have different strategies, 18 months ago those buying spot were the cheapest, that changed 12 months ago. OH got a new 3 yr business contract at 18p/kw a gift at todays prices, when it returns to normal spot prices will likely be cheapest again, new companies will spring up to take advantage of that.

Are you speaking as an expert on energy company dealings, Katie59.

Did you work in the industry?

Why would you think that someone who was an electricity supply manager is not telling the truth?

How is your OH's experience relevant?

Genuine questions.

I doubt that most energy is bought 95% in advance, in normal times the margin between high and low is very small so it’s not really comparable. It’s the uncertainty that drives prices up, we don’t know what the supply is going to be next year, even when Ukraine is settled energy bought forward will keep prices high.

All companies have different strategies, 18 months ago those buying spot were the cheapest, that changed 12 months ago. OH got a new 3 yr business contract at 18p/kw a gift at todays prices, when it returns to normal spot prices will likely be cheapest again, new companies will spring up to take advantage of that.

I had read the term Warm Bank I think it was last week, and dismissed it as a joke.

Not so. James O’Brian had various callers citing Bristol, Plymouth and other in preparation for this coming winter.

It’s like living in a parallel universe.

Thanks Maizie

It's very immoral and certainly shouldn't be used by companies providing one of life's basic necessities.

I cannot believe the people who are still lauding Johnson and the present government
I went out with a group of school friends last week I have never discussed politics so no idea what their beliefs are but someone praised Johnson and everyone around the table was saying the same oh he wasn’t the bad chap they make out he got us Brexit he got us through the pandemic
Even my best friend who I love dearly was whilst saying nothing nodding in agreement
These are all well educated people
I felt sick

Dinahmo

An explanation from a man who used to buy energy for a local authority on J O'B this morning. Apparently the companies buy most of their energy in advance, months or years, paying low prices (ie futures). They always need to buy more which they do in real time and those prices are high. The price cap is based upon the prices for the last 6 months which is why the profits are so high.

I'm paraphrasing here but to me the explanation makes sense.

To expand on this post. An interpretation from twitter of the same expert's explanation

Tom56789@RedTomLoveApple

Energy expert calling J O'Brien LBC used to manage £m supply explains price increase. Large &/or state companies buy 95% energy years ahead eg now for 2025 at eg 3p. Remaining 5% bought on day spot price eg 28p. Cap based on spot price 100% thus huge profits big energy companies

It's the fact that only 5% is bought at spot prices that is driving the huge profits. The futures price for the remaining 95% is much cheaper.

This looks a bit immoral to me.

An explanation from a man who used to buy energy for a local authority on J O'B this morning. Apparently the companies buy most of their energy in advance, months or years, paying low prices (ie futures). They always need to buy more which they do in real time and those prices are high. The price cap is based upon the prices for the last 6 months which is why the profits are so high.

I'm paraphrasing here but to me the explanation makes sense.

So ..... the Tories privatise the energy companies ..... these companies make huge profits ........ customer prices go up because shareholders have to have their money .... government steps in with money to people to pay their energy bills (basically giving us some of our own money back).

Where is the logic in this? There is none - it is purely based on government free market dogma.

Katie59

The UK based energy companies will pay tax on those profits and there will be a windfall tax unless the invest the excess in UK energy production.
Specifically fossil fuel development , there is a lot of gas and oil offshore that has not previously economical to exploit.

As for investors energy companies are doing well their shares are strong, which in turn helps our pension funds and investments.

Increases in pension funds and investments don't help everybody.

The UK based energy companies will pay tax on those profits and there will be a windfall tax unless the invest the excess in UK energy production.
Specifically fossil fuel development , there is a lot of gas and oil offshore that has not previously economical to exploit.

As for investors energy companies are doing well their shares are strong, which in turn helps our pension funds and investments.

There are thousands of small shareholders who have held them for years, and whose income has been decimated,

What they weren't told when they bought them, but which now seems to be standard practice when 'selling' investments (a legal requirement now?) is that 'The value of your shares can go up or down'. Obviously dividends can follow the same principle.

There is absolutely no safe place for your money to be invested apart from in an interest paying bank account, which is legally obliged to guarantee that you won't lose your principle, up to £85,000, in the event of any 'downs,' and, in government bonds or savings accounts which are absolutely guaranteed to be 'safe' as the government will not renege on its debts.

Expecting share values and dividends to remain constant, or continually rise is unrealistic. Investment is always a lottery. If the market bombs, you lose your money.

According to Yahoo finance (giving a source as requested) 80.50% of the shares are owned by institutions and the general public owned 15.8% - back in 2020.

Centrica's origins go back to the 19th century. Various gas boards were created (same as for electricity) which were merged into the British Gas Corporation in 1973. In 1986 British Gas was sold off to the public, institutional and individuals alike. Most of the individuals sold their shares almost immediately and made good profits upon doing so.

the energy companies are not nationalised though ,they are private companies.Unsure what government can do to help other than what they have announced and to up that by providing more money to help households in the autumn budget?It is indeed frightening when energy bills can triple in a year.
there is a case for the utility companies to be run by government for the future.

There are thousands of small shareholders who have held them for years, and whose income has been decimated, literally, since Rishi Sunak's comment at the start of Covid that shareholders would suffer. There is yet no sign that things will return to pre Covid levels which gave a modest income. They have put their own money into the companies, unlike managers who invest others'.

Thank goodness people are protected by the ECHR from going to prison if they can’t pay their bill.

With the interest rates paid by banks and building societies so pathetic you can understand people with a few thousand to invest looking elsewhere.

However the so caller investors in these organizations are unlikely to be small individual shareholders who own say 100 or 200 shares. More likely hedge funds and corrupt offshare millionares who dont pay their taxes because they can afford clever accountants to circomvent the system. In other words dyed in the wool Tories.

Whitewavemark2

Pammie1

Whitewavemark2

They mentioned up to £500 on the news. Well it isn’t going to happen is it.

They meant £500 for one months’ energy - will be the average bill for January alone !!

Yes! how can that happen?

For anyone on the cap it’s a distinct and utterly terrifying possibility. I read an article in The Times online this morning which carried news of the announcement and the arrogance of these companies is staggering - trying to justify over 30% of the increased revenue being paid in shareholder dividends. Bet they’re not keen on executive pay and bonuses being made public any time soon either.

varian

Are the companies which claim to be providing electricity partly or entirely from renewable sources raising their prices to the same extent?

If so, how could they possibly justify such profiteering?

I think you’re talking about the supply companies. The profits just announced are the producers.

Pammie1

Whitewavemark2

They mentioned up to £500 on the news. Well it isn’t going to happen is it.

They meant £500 for one months’ energy - will be the average bill for January alone !!

Yes! how can that happen?

Whitewavemark2

They mentioned up to £500 on the news. Well it isn’t going to happen is it.

They meant £500 for one months’ energy - will be the average bill for January alone !!

Are the companies which claim to be providing electricity partly or entirely from renewable sources raising their prices to the same extent?

If so, how could they possibly justify such profiteering?