The Great Energy Rip Off

Energy companies regularly use rising wholesale prices as a justification for why they raise energy bills for customers.

However, the calculations by which the "justify" their price increases are utterly incomprehensible. As such OFGEM have hired forensic accountants to scrutinise the wholesale fuel prices paid by the "Big Six" energy companies.

Given that OFGEM can't understand the pricing structure of the energy industry, how are we poor saps (the end users) meant to understand it?

Q: Why do the energy companies make it so complicated?

A: RIP OFF!

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Greed

Britain's utility companies are to be congratulated on being even more greedy than banks, insurance and credit card companies, in their brazen fleecing of the consumer.

E.ON added its name to the list of shame by raising prices this morning, electricity up by 16% and gas by 26%.

Similar recent increases were imposed by EDF and British Gas.

Time that the sleepy old watchdogs, that are allegedly looking after the interests of the ripped off British consumer, to wake up and earn their pay.

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Fuel Bills To Rocket by 40%

To add further fuel (bad pun isn't it?) to the rising inflation figures (3.3% or 4% depending on which you believe), energy companies are expected to raise their prices by up to 40% this year as a result of the trebling in wholesale gas prices (which are linked to oil prices).

The average UK energy bill is expected to rise from £1048 to £1467 in the next 7 months.

Consumers may be forgiven for thinking that Ofgem the energy regulator will step in to protect them. However, this is a false hope, MPs have accused Ofgem of being a toothless tiger that does not do enough to help consumers.

Lindsay Hoyle, Labour MP for Chorley, attacked Alistair Buchanan, Ofgem's chief executive. Mr Hoyle said that energy companies blamed poor planning laws for not building enough storage facilities to enable Britain to be self-sufficient. However, he said that it was in the companies' interests to maintain a shortage so as to increase their profits.

Mr Hoyle is quoted in The Times as asking Buchanan whether he was prepared to act now to address the issue, adding:

"Or are you the toothless tiger that we imagined?"

The next 12 months will be very tough for all in the UK. The government remains on the sidelines, a bemused observer wringing its hands.

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Inflation Up

Consumer Price Inflation (CPI) rose to 2.5% in February, it was 2.2% in January, as a result of increases in energy bills.

The Bank of England's target for CPI is 2%, any rate above that makes it more difficult for the Bank to cut interest rates.

However, given the financial tsunami that is heading our way from the USA, it is likely that the Bank will have to cut rates further if it is to try to avoid recession in the UK.

Whilst the headline rate may look relatively benign, underlying increases in the price of staples such as; cheese, milk and bread prices (which rose by a staggering 17.6% in February) will hit households very hard.

The Retail Prices Index (RPI), which is a better guide to reality, remained unchanged at 4.1%.

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Crime and Punishment

Following last week's announcement by npower of an average 17.2% increase for gas prices and an average rise of 12.7% for electricity, Ofgem (the energy regulator) has tried to damp down fears of increasing residential gas and electricity prices.

Ofgem, in a response to a letter from Chancellor Alistair Darling, said that market forces (ie customers being able to switch accounts) would ensure that the consumer would not suffer unduly.

Quote:

"In Britain's competitive market some energy suppliers will be better at buying their energy than others and will be able to price at an advantage to their competitors,' Ofgem said.

Over the last five years we seen this happen and companies with high prices have been punished severely by customers. With customers switching at record levels this is set to continue."

This is all very well. However, it assumes that other energy suppliers will not follow npower's lead. Npower disagrees, and said that it expects other suppliers to "follow suit very shortly".

Darling and the government will be sweating in their beds, fearful of the effect that such dramatic price rises will have on the voters' perceptions of the effectiveness of their handling of the economy.

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The Metronet Debacle

Yesterday I asked, in a somewhat ironic tone, how is it that Metronet managed to get itself into such difficulties.

The answer lies in it's "jobs for the boys" approach to its contracting. More formally known as "tied supply chain", this ensured that Metronet's five shareholders (WS Atkins, Balfour Beatty, Bombardier Transportation, EDF Energy and Thames Water) were guaranteed most of its work maintaining and upgrading the Underground.

A nice little earner for those with their fists in the honey pot. However, rather a poor arrangement for the tax payers and commuters who find themselves holding the shitty end of this rather unpleasant stick.

This arrangement has been criticised regularly by London Underground, Ken Livingstone and Chris Bolt, arbiter of the £30BN Underground public-private partnership.

A prophet seemingly receives no honour in their own country!

I look forward to seeing how the "listening" clunking great fist tries to get himself out this mess.

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Rate Rises In The Pipeline

Those of you who breathed a sigh of relief last Thursday, when the Bank of England chose not to raise interest rates, should take heed from the warning issued by Mervyn King (Governor of The Bank of England).

King, in a speech to business leaders at a CBI dinner in Wales, has put borrowers on notice that there will be further rises in rates. King warned of "persistent inflationary pressures" the result being that the Bank "may need to take further action".

King warned of the dangers of excess debt:

"It is unwise to borrow so much that the repayments are affordable only if interest rates remain at initial levels."

That is a clear message to all, that further rates rises are coming.

King noted that there are inflationary pressures within the system, as there are attempts by businesses to raise prices as spare capacity has been taken up by strong demand stoked by a buoyant world economy, as well as the fastest growth in business investment for almost a decade.

King added:

"There has been some underlying upward pressure on inflation that is in part hidden by the volatility in domestic energy prices."

He said that the Bank's Monetary Policy Committee (MPC) would be watching gauges of spare capacity, of companies' pricing plans, and of inflation expectations.

Quote:

"If these indicators remain elevated, the MPC may need to take further action."

The message is clear, those of you who are heavily in debt need to ensure that your finances can withstand a rise of between 0.5% to 1% in rates in the coming year.

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