Getting heated about heating - energy company ripoffs

Rip-offs come in all shapes and sizes:

• Crippling inescapable pilfering that ruin you and offer no hope of recovery. Pensions and investments, with their high charges and low returns, fall into this category, leaving millions spending their final years in reduced and poverty stricken circumstances.
• Discretionary scams, such as purchases of goods and holidays. A few hundred, or thousand, pounds lost on a non-recurring and avoidable ‘low cost’ flight or fridge or time-share holiday home.
• Periodic kicks in the gut, such as servicing your car, and your gas and electricity utility bills. Made more awful by the knowledge that they are coming, and will come again and again.

Of the periodic kicks in the gut, the hardest hitting are utility bills. Rent or mortgage probably costs more, but is predictable. The cost of staying in your home stays the same most of the time, and it turns up on the dot each month. You use your house for a month, and you pay for a month.

But with utility bills everything is fluid. What you pay depends on how much electricity and gas you use, what time of the day you use it, and what the latest cost is. The cost is dependent on whether you pay by meter, by direct debit, by cheque, by paperless billing, by papered billing. And also on the prices of fossil fuels, the projected prices, the cost of the hedging done a year ago to mitigate price risk in the year to come. Which is all highly dependent on the crazies in Venezuela, Iran, Iraq, Saudi Arabia, and whether the Americans wants to test their latest hardware by dropping it on someone somewhere. And, just as importantly, it depends on how much the energy companies want to rip you off.

Ordinary Britons are on the whole painfully reasonable people. If we possibly can, we tend to give the benefit of the doubt and take the pain. The scamsters rely on this. Where there is uncertainty and confusion about the apparent scam there is resigned tolerance. Without a forensic examination we can’t be sure whether that gasp-inducing gas bill was because we left the thermostat too high a month ago. Or if we can do something about the shocking electricity charges by running the washing machine at night during off-peak hours. If at all possible, we put the blame on ourselves – mainly as an excuse for not taking any action against suspected rip-offs.

Tolerance is generally found in the list of ‘good things’ – but whether tolerance is good depends on what is being tolerated. Of course, the last thing this blog aims to do is to make ordinary Britons unreasonably intolerant! So, to give you reason to get just a bit narked, here are some details.

With so many variables, the utility companies have more opportunities to bamboozle you than you can shake a chequebook at. This assumes you are using a chequebook, and haven’t been blackmailed into setting up a Direct Debit – which is a rip-off in itself, allowing the utility companies to ‘borrow’ at zero cost hundreds of millions from their customers by simply drawing it from your bank account. But more on that another time.

With years of experience exploiting these opportunities, and having learned long ago that the government watchdogs are not just toothless but are dog-less, the utility companies are merciless in their rip-offs.  Ofgem, like a disappointed but indulgent primary school teacher, gently reproves the utilities with words such as

“It has come to our attention that suppliers may not be conducting due diligence while executing some of the new provisions of SLC**.  Therefore, we have decided to issue this guidance to help clarify certain issues.”

“ Given the history of the marketing licence condition and the extensive consultation exercises previously carried out (e.g. during the Probe), Ofgem firmly takes the view that suppliers should already be fully aware of, and fully capable of understanding, the spirit and letter of the obligations contained in SLC **. In the absence of exceptional circumstances or compelling evidence of genuine uncertainty, Ofgem is unlikely to consider it appropriate to provide any additional clarification on SLC **. It remains the responsibility of suppliers to ensure compliance with all licence conditions and relevant provisions of consumer protection law.”

Extract of an Ofgem ‘guidance’ letter, where SLC** is a Standard Licence Condition.

In summary, this says:

a)         We know you are doing the wrong thing.

b)         We’ve already told you what the right thing is.

c)         We know you know what the right thing is.

d)         We’re not going to tell you again.

e)         You should be doing the right thing.

f)          Erm… that’s it. Yours Sincerely etc.

Ofgem plays the part of a broken schoolteacher standing in front of an out-of-control class of adolescents. The children have worked out that there is nothing the teacher can do. “Stop Talking!” says the teacher, “I wasn’t talking!” replies the student, hardly pausing between instalments of playground tittle-tattle.

Just like the naughty student, the energy companies’ standard response to suggestions that they are profiteering is that they are not. A brief dismissal of the suggestion, daring the accusation to be made of lying – relying on the truth being obscured by a whole lot of smoke, hot air and, more recently, CO2 emissions. If you want to know whether companies are profiteering, don’t look at the statements they make to the regulators and the public, but look at what they say to their investors. 

When the energy companies made huge price increases in 2008, their excuse was the spike in the price of oil. Centrica is a UK energy supply company. Their graph shows how the price of power followed the price of oil. Which would be reasonable if electricity was actually generated by burning oil. However, in the UK oil is used to generate less than 2% of the electricity. In the land of Ripped-off Britons electricity is largely generated by coal, gas, and nuclear. While there was undoubtedly a huge jump in the price of oil around 2008, the rise in gas prices was little more than a bout of mild flatulence.

To avoid all doubt, and see how we are ripped off in the starkest terms, take a look at the gas prices over the five years between 2005 and 2010. In this period the retail gas price (what we pay to power our homes) increased by 80%, while the wholesale price (the cost to, for instance, Centrica to buy the gas) fell by 35%. The collapse in the cost to the energy companies of wholesale gas in the first part of 2009 was ignored by them, having no significant effect on the price paid by consumers.

Figures from the Department of Energy and Climate Change

http://www.decc.gov.uk/en/content/cms/statistics/source/prices/prices.aspx

http://www.ofgem.gov.uk/Consumers/CI/Documents1/Direct%20Debit%20Report%20March%202009.pdf


Energy supply companies justify their high price with the high price they pay to buy energy from the generating companies. However, they omit to mention that five of the 'big six' supply companies run their own generating companies.  According to OFGEM,  "The five former electricity incumbents can meet all of their domestic and SME requirements from their own generation." This OFGEM graph shows how, since 2005,  energy companies have switched their profits from supply to generation, providing cover for their rip-off retail prices.

http://www.ofgem.gov.uk/Markets/RetMkts/ensuppro/Documents1/QPR%20final%20feb.pdf

If you wanted to get hot under the collar without switching on your central heating, take a look at the Centrica 2010 Interim Results presentation to investors - and their statement that they intend to double their profits over the next 3-5 years!