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back to article UK energy industry mugs customers

The future for UK energy may be smart technology, but the economics behind that decision are decidedly unsmart. Or possibly very very cunning, depending on whether or not you credit the beancounters at Ofgem with a degree of subtlety. On the surface, this week’s story (pdf) on Ofgems smart grid plan was straightforward: in order …

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Fantasy accounting

The £6 per year figure is clearly a nonsense if this is £32bn of extra capital spend. Even using a modest financing cost of 4% per year (and it's probably the allowed ROI number that is most appropriate), £36bn would cost £1.4bn a year just on interest before any capital pay back. Divided among 26m households, then that's about £55 per hear. Put a more realistic financing figure in that, allow for maintenance costs on the extra infrastructure and you might double that or more.

Of course business customers will have to be paying their share too, so it won't all be on householders, but the £6 figure is a joke. Maybe a cummulative extra £6 per year, every year for the next decade and a bit.

it would be nice tho think that some of this capital expenditure will go towards efficiency (both energy and operational costs). Most businesses, when assessing investments, also look at that factor. As it is, regulatory regimes often just motivate companies to increase their capital expenditure as they are simply able to make money on this using the allowed ROI rules.

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FAIL

Duh

You obviously didn't read the article properly, if at all...

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WTF?

well done.

So you would rather just not know at all about this? its thinking like that, that gives others the go ahead to charge/do whatever they want. I thank the author for bringing things like this to others attention.

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Terminator

I'm w Duh

So what is the point then? Support the need for infrastructure investment, but whine not even about the method, but about the language? But go w a headline saying the Energy Ind "Mugs"... $32Bn...?!

Surely if the langage is the problem, then the article could be entitled, Energy Industry Spins Cost Increase or similar.

Now that would be news! Lol.

And it is ironic that the title spin of this article is at least as aggressive as the spin the article whines about.

You find me any industry that doesn't ruthlessly spin every change to its cost structure. Any change always officially means the best thing since sliced bread and always represents great value and improved this/that for the customer via all manner of nebulous intangibles, whilst coincidentally always growing the take.

This story really busted those evil policy architects and their devious, corrupt ways. Nooot.

Couldn't the journo have done something useful with his time like looking at how Energy comps employ lobbyiests to convince govs to do the wrong thing when it suits the bottom line.

Rather than whining about attempts to create infrastructure investment that everyone accepts is needed.

And however you spin it, to assist the country meet its Kyoto/whatever commitments and improve infrastructure we are talking pennies a day. If energy costs are an annoyance, then one can save back those pennies a day with the GREATEST of ease.

Check your tire pressures! Or go with a 48" TV instead of the 50". 4% won't kill you. Sit 10% closer! Maybe even go w a 38 and move it twice as close for a massive apparent increase in screen size with great energy savings. Or any number of examples. Watch on your frikkin Ipad and STFU.

You don't like the way marketing people work? Join the club. Whine about that whole situation rather than specifically railing against something that will actually benefit the country.

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Paying more for less?

So they are effectively saying that any savings you make by using low energy devices, switching off PCs at work and other measures will be completely negated because they'll just push up the price of energy so that you are paying more anyway. Is it really legal for them to not allow you to save money by being more efficient?

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Growth...

Business success is defined only by growth, so it's almost inevitable that we'll end up paying more for less where energy is concerned.

I believe we *should* use less energy where we can, but let's be honest - When an energy company encourages you to do it, it's in the hope that you won't notice the unit price of energy increasing quite so much.

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Joke

No wonder foreign companies are falling over themselves in the rush to get into the UK energy market when the quango which is supposed to serve UK interests produces figures like that which WE all end up paying for...

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Ofgem

Nice cushy jobs there if you can get them. Don't upset the energy companies or all those nice junkets will suddenly cease.

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Ever heard of borrowing money from banks?

Why should subscribers pay anything, other than proper user fees, for infrastructure?

Canada has recently invested huge fortunes in upgrading the electrical systems to introduce Time Of Use metering. They didn't get an award from the customer base to finance this, they got the money from their business resources.

When British Gas had an interest in Consumers Gas in Ontario, Canada they even charged householders for having a gas pipe running into a house EVEN is the meter was disconnected. Real bunch of corporate crooks.

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you miss the point

and that point being the energy companies want to ensure their profits are as high as possible, all the time.

Going to the banks will finance the deal sure, but will come with some interest rates and plans for repayments and heavy penalty clauses if such payments are not met etc.

"IF" given the option between paying more for my utilities to fund this upgrade or them go to a bank...its gonna be pay more myself everytime.

With the banks we'll be paying MUCH more!

We may as well all bend over now and relax.

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It's a shame

that the energy companies make so little profit that they cannot afford to invest in their own infrastructure.

Call me a socialist, call me whatever you like. But utilities... water, gas, electricity, should be owned by the people and any net profit should be invested in maintaining and upgrading the infrastructure around those utilities. Any cash left over should be invested into R&D of alternative energy resources.

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Grenade

Re: It's a shame

The ideal: "But utilities... water, gas, electricity, should be owned by the people and any net profit should be invested in maintaining and upgrading the infrastructure around those utilities."

The reality: "But utilities... water, gas, electricity, should be owned by the people and any net profit should be splurged on whatever looks like a vote winner this week and/or vast overmanning to keep the unemployment figures looking good, while the infrastructure around those utilities goes to hell in a handbasket."

It seems that the population has a collective short memory (about 20 years I reckon). That's the only way I can understand how it is that people seem to have forgotten the useless, incompetant, complacent monolithic piles of user-hating complete and utter shite that were: British Rail, GPO Telecoms, British Gas (Ok, not much change there, but at least you can go somewhere else now), etc ad nauseum. A special award should go to the Central Electricity Generating Board, who you would have sworn to God were getting a kickback from candle sales given the number of times they turned all the fucking lights off.

I have the perfect answer. Every time some lefty fool bangs on about the merits of nationalisation to me, I just look 'em in the eye and say two words: "British Leyland".

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Nationalisation

Nationalisation is not a stupid left wing idiots idea.

When the item is necessary for the countries defence (as defence companies, roads, rail, power, water, gas, telecoms all are) AND more especially when the costs of setting these things up prohibit the entrance of a new player and thus lead to a monopoly then they NEED to be nationalised for the benefit of the country and consumers. I don't CARE if a nationalised company makes a profit, that comes off my tax bill, I don't CARE if they over man - the saving on unemployment benefit come off my tax bill. With a nationalised industry the profits do NOT end up in the pockets of a few already very rich shareholders as they do with the now private monopolies. You apparently can choose your electric and gas supplier - but actually the raw material they supply come through a monopoly supplier so you can't do more than save a few pence around the fringes. You can't choose your water or sewage supplier. You can't choose your railway supplier. Even your telecoms supplier all rely on an infrastructure which represents a monopoly so again you only save marginal amounts around the edge. In ALL cases these monopolies are up for grabs by foreign companies that may or may not keep the infrastructure in repair, may or may not use British labour, may or may not use British equipment. Every time they choose not to repair the infrastructure, or to do a minimum bodge with some foreign equipment and labour it takes money out of the British economy and boosts them (in much the same way as everytime our stupid governmetn and agencies buy a Volvo instead of a British car, a BMW instead of a Triumph motorbike or a Mercedes van, Indian software system, American tank, American missile or American census they take money from the UK and support someone elses economy).

Frankly I don't have a short memory, I can remember Thatchers decimation of the UK economy - the lady wasn't for turning even when it was quite obvious she was heading down the toilet pan with the rest of the country. The Labour party have been stupid enough to follow and now we are somewhere in the bowels of the sewers. The whole of our economic woes now can be traced to the stupidity of killing off British industry and selling the states 'gold' (Gas, Water, BT...)

True there were major problems, but killing the patient may 'cure' the pain of a broken arm but its hardly the best way of doing it.

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Must be unique

There can't be many industries that can raise investment by simply sticking up prices to the end user almost without any fear of those customers going somewhere else. How about the energy companies investing a few billion of their own - it's not like anyone that's invested in energy has done badly from it.

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Unhappy

The same over here in the states.

We recently got Smart Meters in our area. The distributor sticks us with a $2.20/month surcharge for the next 11 years and the retailer a $3.95/month surcharge for the same period. This despite the fact that the electric companies are saving money by not requiring meter readers anymore.

This is just as ludicrous as gas companies here charging its customers to replace potentially hazardous steel gas pipes and then not actually replacing them. In fact, sometimes we're charged two or three times over and they're not replaced. I'm not sure why they're charging us - at a profit, no less - to replace a known faulty system that they themselves installed (knowing it was faulty!) in the first place.

Apparently regulators on both sides of the pond look out for nobody but the ones they're supposedly regulating. Light the torches and gather the pitchforks, I think it's time to slay the real monster.

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Agree but

The biggest problem in both the UK and the USA is that the school system has been designed to produce generation after generation of idiots who believe the bull.

I always found it amazing that the Americans would tell me they are the only democracy and the land of the free when we also claim ot be a democracy (neither country actually is) and you only have to look at any sign post in either to see the list of things you can't do... I went to the seaside yesterday and the 'Welcome to Hunstanton' sign from the local council had 20 things you couldn't do on it!

Although gathering the pitchforks and revolting against the insanity would be a nice idea there would only be half a dozen of us watched by some bemused idiots and then arrested by thousands of men in blue.

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Boffin

double derivative-ing

double-dipping is a well understood type of accountancy misdemeanor, we could do with a similar term for this sort of nonsense, as also often used by Governments. For instance when they state that the rate of increase of unemployment is down 20% - its a double derivative.

In this case it's a related misleading statement - reporting a compound increase in price per year as a fixed cost. - Its a units error, pounds per year per year, reported as pounds per year.

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We want to save consumers money ..

The real way for consumers to save money is to know how much they are spending. The first step toward this is to ensure that consumers can read and submit their meter readings at minimum once per month.

Yes you can do this now but they do not generate a bill for it unless it is part of the quarterly billing cycle. You have to wait 3 months to find out how much money you have actually spent.

The utility companies are not going to introduce this as it removes the need for the monthly direct debit which is just a way for these companies to get free credit. I want the choice of 'bill evenly distributed through the year' (sort of) and PAYG. Give me the option NOW!

They are just a bunch of thieves. but with nice suits.

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Boffin

@Mike Hardie

Actually I believe that in the UK they do offer such accounts, typically you enter gas and electricty meter reading through a web site.

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Blowing in the wind

Much of the expenditure is for the infrastructure to distribute wind energy and to accommodate the fluctuations in its supply..

When the requirement for gas turbine and other backup is taken into account, wind has a large, normally unseen and unstated, carbon cost. The load factor is only 25-30%; and it needs 100% backup for calm periods. A large proportion of the claimed carbon saving comes about not from wind itself but from the shift to gas generation of electricity. Large coal power stations can't handle the variable load that wind's erratic supply imposes on the rest of the network and gas takes this up.

Half of this £32++ billion would buy the baseline generating capacity the UK needs for long-term stable supply; nuclear power stations are available with three to five year build times from several manufacturers..Some of the remainder would buy a tidy slice of research into Gen IV, put us back in the world market and on track to dispose of plutonium stocks and a large proportion of accumulated waste.

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Coat

User hating?

The nationalized industries were like the Post Office -- everyone likes to grumble about them but they worked. Lets face it, all you got for the privatization was a steep rise in bills and a whole carousel of marketing schemes designed to optimize consumer yield.

We get far better regulation of utilities in the US. We had a brush with deregulation, UK style, and got well screwed for our trouble. Utilities are a monopoly; they have to be regulated or you'll get nothing but consumer abuse.

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Nik
WTF?

Wasn't the whole point of privatisation.....

so that companies would be free from the shackles of the government.

This would allow them to freely raise capital on the international money markets to invest in infrastructure and services, which would be used to compete with one another to entice us, the consumer, to sign with one company rather than another.

I seem to remember have this explained to me as a teenager in the 80's and through the 90's at great length.

If this was the case, then why are we constantly paying over and over again with price rises to ensure the future of the industry?

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No, the point of privatisation of the utilities...

... was to give Maggie a big chunk of money which she could use to buy the next election!

Unfortunately what we now have is oligopoly/ virtual monopoly suppliers who have no interest in *actually* competing with each other (because that will harm their profits) so they make it as hard as possible for the consumer to compare like with like and use all sorts of confusion marketing techniques to baffle people into paying more for their gas, electricity or water than they need to.

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@Nik

because they have gutless regulation and can screw you at every opportunity, so why not?

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Yes and no

The whole point was so that they could raise money and we would benefit from competition.

But NO, that was never actually the truth. The REAL point was so that a few very rich people could buy a stack load of 'shares' in a company for a fraction of its real cost, make a heap load more money, salt it away as 'investments', 'dividends' and other tax free things in foreign bank accounts.

There was never any way any company would ever be able to raise the funds to install the water collection and delivery mechanisms, the sewage mechanisms, the telecoms lines, rail infrastructure, gas pipelines, electricitiy generation and distribution systems that they would require to complete. In short the cost of entry into the business and the risk of the incumbant freezing you out by dropping prices because IT doesn't have debts to replay made it totally impossible for ANYONE to enter the system to compete. Thus we now have private monopolies in place of public ones.

Regulation is NEVER going to work with these people - it can't, how do you regulate water or electric? If the (now foreign) owners can look you in the eye and say we want to charge X, you have NO alternative supplier of this essential product, no alternative way of getting it to consumers so you have to let us charge what we want or we will just shut down the plant, destroy it and walk off - then no regulator can prevent the monopoly charging what it likes.

We have a 'monopolies and mergers' commission which is supposed to protect us against monopolies in such things as grocery shopping - yet when it comes to something like water which you can't get from anywhwere else the monopoly was created by government and now woudl be hard to 'uncreate'.

We were sold a lie - something that politicians are adept at.

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Energy companies

Sounds like I should be off to buy some UK energy provider shares then - can't see any downside if Ofgem allow open season on the customer.

Whatever happened to taking part of your profits and reinvesting it for future growth? From what I can see they've taken 100% of their profits and handed them out to executives and shareholders and now want the end consumer to stump up some more for the investment they themselves should have been doing. Wankers.

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If you are rich enough why not

The rich get richer by being able to buy shares such as these, while the poor get poorer because they can't buy these shares but have to pay the bills. This is the way it works, Labour at last caught on to this and continued the trend...

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