The Truth About IPP Sentences

How Much Profit do Energy Companies Really Make – Less Than You Think!

Seriously. They make a lot less profit than you may imagine.

If you think this is beyond belief, we share your astonishment. Nevertheless, it is a fact that energy companies make, on average, less than 1% – that's not a misprint; 1% or less really is the average yearly profit.

The other 99% of the cost that we pay for our gas and electricity goes on overheads and paying the wholesale price for the energy upon which we all depend. The costs are split, often in different proportions for different energy suppliers, between infrastructure, new power stations and gas terminals, transport, people (one of the biggest costs), the raw energy, tax and research and development.

However, we should not feel to sorry for the energy companies who, although their margins are low, have so many customers that their overall profits are huge. So huge in fact that most companies are split into domestic and international operations. This is necessary in order to minimise the loss from  tax obligations.

A typical breakdown is outlined below:
 

As you can see in the illustration above, the wholesale cost of energy is huge and the Net Margin was in negative territory for several years. Since 2008 though, the margin has increased significantly.

The regulator of the energy companies is Ofgem. They are pathetic.

Many believe that Ofgem is in the pockets of the energy companies themselves and simply spout words in order to try and placate angry consumers. The government refuse to step in and apply restrictions to energy bills simply because the higher the price, the more VAT is paid to the government.

The myriad of pricing policies, special accounts, discounts and offers that issue forth from the UK's energy companies are enough to confuse anyone and it often the case that many people have no idea what their bill will be before it arrives through the post or money suddenly disappears out of their bank account.

Energy prices are set to continue to rise and the increase in VAT last month has only made matters worse. The government will not intervene so don't hold your breath waiting for them to come over the hill to rescue us all.

Energy companies were privatised on the pretext that doing so would introduce 'healthy competition', although many believe that Thatcher was simply asset stripping and stealing the country's collective wealth. The experiment was a disaster, as it was with the railways and it is very unlikely that energy suppliers will be re-nationalised in our lifetime.

In France, where the industry is still mainly state owned, prices are lower. Consequently, manufacturers have to pay less to produce their products, wages are higher and go further. Energy prices are capped and all hell breaks loose if the government try to put them up. Altogether a much better system many may say.

Like the water companies who take away used water – not those who supply it – the energy companies will always overcharge their customers if they can. Water companies are also 'regulated', this time by Ofwat. This regulator is even less effective than Ofgem and also allows those that they supposedly regulate to control the situation.

Is there anything we, as ordinary consumers can do about this lamentable situation? Not much really. It is too complicated, too expensive and causes most people to lose the will to live.

Responsibility, in this case, really does lie with the government and it must act before prices become completely unmanageable.
 

Meanwhile, we'll all feel sorry for the less than 1% profit that the energy companies make shall we?

I think not!

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