Utility Price Watch

• Home
• About UPW

Utilities’ Profits Protected

Utilities have one distinct difference in how they are run when compared to typical high street businesses. When wholesale prices for gas and electricity increase, the energy companies raise their prices to the consumer, all with the formal approval of the regulator. No attempt is made to absorb the cost of the price rise and affect the profits of the energy company.

National high street chains struggle at times with market conditions, decreasing profits leading to marketing strategies to entice customer spending. During the Christmas 2007 period Marks and Spencer had a fantastic turnover of stock and customers, but resulting profits were low as in order to get items off the shelves prices had to be reduced and marketing campaigns increased.

This year we have witnessed two price hikes from the energy suppliers adding a whopping 35% to a typical gas bill. For every £100 spent on a gas bill in January of this year £135 is now needed.

Gas Price Rise 2008

For electricity bills the amount has increased from £100 to £130.

Electricity Price Rise 2008

 

Overseeing these prices increases is the regulator Ofgem, which states that its first priority is ‘protecting consumers by promoting competion’. In an energy probe report released by Ofgem which examines competition in the UK energy market it states:

…which found a range of issues in continental European gas markets acting against the interests of GB consumers

we raised concerns relating to the lack of effective competition in key EU markets which gives rise to a link between the oil price and the gas price

we were unable to satisfy ourselves that all contractually available gas was being released into the market, that use of storage capacity was appropriate, and that surplus transit capacity was being made available. These features have a substantial impact on the prices paid by gas and electricity consumers in the UK

The high level UK gas price increases overseen and approved by Ofgem are caused by a lack of regulation in the EU, and even price fixing is hinted at in the last excerpt. Both areas out of Ofgem’s reach. The report provides no confidence that this year’s price controls are an anomaly and will not be repeated.

 

Whatever the root cause of the price increases the business model of the energy companies will endure – when wholesale energy prices increase, pass the increase onto the consumer and maintain profit levels.

5 Responses - Add Yours+

1. Utility Price Watch » Fixed term Contracts Begin to Appeal says:

   August 27, 2009 at 11:35 pm

   [...] due to the credit crunch –  leading more households to consider a fixed term contract. Our previous posts also highlight why energy prices do not often [...]
2.  Dinse Treat says:

   August 16, 2010 at 12:27 am

   Gas prices would always go up that is why we should move to alternative energy.
3. Dye Flere says:

   August 26, 2010 at 2:39 am

   DELETE THIS TOPIC!!
4. Evelyn Ahmed says:

   October 1, 2010 at 6:05 pm

   gas prices are still on the rise today, we should go Alternative Fuel.,,
5. Flann Shannon says:

   November 8, 2010 at 4:51 pm

   Gas prices will always increase, that is why we should focus on alternative energy sources.