The price of Gas

[LongQ]

Something interesting here from within (at least partly within) the industry that provides so much of our energy either as a direct gas supply to home and factory for the generation of electricity.

The 'regulator', Ofgem, seems to be qiuite comfortable withthe gas boys making some very healthy margins. I suppose that puts the 'Gas Regulator' in line with the other government regulators for comms and banking and the rest of the supposedly regulated industries, none of whom seem to have the consumer in mind these days. Are they doing it for the tax income? Or are they telling the operators to create a huge fund to mask the true costs of 'going green'?

Energy prices are predicted to double by 2015 which, coincidentally, is more or less in line with the next general election if the Coalition lasts that long. A steepening price rise at that time might be bad for votes for the incumbents. But if they can force the prices up now they might see a douobole win in 2015. It may be possible to present a view that price rises are stabilising or even declining (for a short while) and the tax take between now and then might just mean that they can appear to be giving something back (for a short while) from the 'success' of the fiscal policy.

I hesitate to say 'prudence' but they might presnt it like that.

See what you think.

http://nohotair.typepad.co.uk/no_hot_air/2011/01/t...

[JagLover]

There is always the option of switching suppliers and if the consumer is too lazy to do so it is their own look out.

[LongQ]

A lex said:

Im paying 51p (equivalent) per cube here in NL, that includes network costs, tax, everything.

For comparison, what are typical UK prices?

I have the feeling energy costs here are higher than the UK as the tax component is HUGE - but would be interested to know.

Well in the UK we are billed per KWhr after a conversion from cubic metres has been applied and the charge rate is split to create a higher rate for 'first units' that are billed with a network cost recovery factor to them and 'next units' which are, in theory, mostly gas. (See the article for an example). Plus the current VAT rate on energy is 5% which may be lower than the Netherlands. Tax, of course, makes things difficult to compare directly since additional cost in one area of comsumption may be offset by reduced costs elsewhere.

My last regular bill was an estimate with a price change just before the billing date. It was an underestimate so I advised the supplier about the actual readings and now, rather than an adjusted bill re-issued as they have sent in the past, I have an extra invoice all at the new rates. Which is kind of interesting when attempting to work out how reasonable that is. (I also expect the next estimated bill could be very wrong if they use these numbers.)

However, to answer your question, excluding out 5% VAT and taking 2 usage figures at the new rates, both over short periods so may not be good averages with the rate splits, the cost per Cube seems to be about 40p from my supplier. So based on your 51p it seems possible that NL is also paying a high price compared to the potential costs of Gas supplies from North America, even allowing for shipping costs. So we come back to the questions about how prices are negotiated in advance and the validity of the supply and demand models that influence the setting of the market price a year or two ahead of consumption.

Someone must have all the information but I doubt it will be deemed suitable for the public domain.

[LongQ]

JagLover said:

There is always the option of switching suppliers and if the consumer is too lazy to do so it is their own look out.

That's an interesting response to the article. In this case I assume Centrica, as the consumer, has been doing exactly that - for whatever reason - by buying in the USA. Or there could be other reasons for such a purchase since Centrica also operates in the US in the energy business. This may give them some advantages in less obvious areas of the business.

However the real point the writer is making, surely, is whether and how the wholesale purchase prices are reflected in potential profit margins at the retail end of the chain. It occurs to me that 'free' markets have an inherent cost overhead for customer 'churn' that can in no way be considered beneficial for the economy except that it may keep a few call centre workers employed somewhere in the world. I suppose it may also make good returns for those who have invested in 'comparison' web sites. Otherwise nothing at all tangible comes from it. No doubt our bills include some latitude for recovery of 'churn' costs that Ofgem, as the regulator, finds acceptable.

Nevertheless, given that the Gas market is something very close to a product monopoly of its type no matter what branding is attached to the billing, the question of margins and where and how profits are spent (let alone whether the purchase process bidding results in reasonable 'buy' prices) credentials for a 'free market' economy are a little thin. Hence my supplier pushing a tracking billing connection where they 'guarantee' to always be a little cheaper than the published British Gas prices. That's not a free market pricing policy - in effect it's a tied market pricing policy. So removing the cost of 'churn' and monitoring the purchasing activities closely could be beneficial to all customers.