We hate putting our prices up.
We hate the impact it has on our customers, many of whom are already seeing their household budgets squeezed.
And we hate the fact that it grabs more headlines than the hard work our staff put in day in, day out to provide a truly excellent customer service.
Stable prices are in the interests of customers and energy companies alike.
Believe me, putting up prices is a last resort. That’s why I’m disappointed to be writing this blog. Although we have shown as much restraint as we could, ultimately the extent to which our costs are rising meant we couldn’t avoid the change.
But rather than simply expressing my deep regret, I think it is important to explain exactly why we have had to make this change.
Firstly, let me touch on profit. This may come as a shock, but on average we make a profit of around 5p in the pound from selling energy to customers.
Unlike some of our competitors, this profit stays in Great Britain and Ireland, where we employ thousands of people in places like Havant, Cardiff and Perth, and pay hundreds of millions in taxes to the Government.
The profits we make are reasonable. This price change is about recouping the higher costs we are facing. We know that energy is an essential part of life and that our profits cannot be excessive.
Profits can vary year to year, largely depending on the weather, but over the medium term we think an average profit margin of 5% is a fair amount to make for the important work we do through our Energy Supply business. What’s more, a recent poll we carried out showed that the vast majority of customers agree with us.
So why are energy prices going up?
The price of buying energy in global wholesale markets for this winter is yet again higher than it was in the previous year, after the March cold snap led to the highest ever out-turn price for gas. The backdrop for this is the UK having to import a growing proportion of its gas as North Sea reserves dry up. We have to compete for the energy we buy in global energy markets, with increased demand from the likes of China and Japan pushing up prices.
But believe it or not, the cost of the energy itself now only accounts for around half of a typical bill – and it’s not the only cost that’s gone up.
The cost of using the pipes and wires to transport energy to your home is going up in order to pay for urgently needed upgrades to the UK’s ageing network infrastructure.
And the cost of government environmental schemes paid for through energy bills is rising too.
If you know what I mean when I say ‘government schemes’, you’re in the minority. A 2012 survey by Consumer Futures found that as many as 9 in 10 people do not know that they pay for these schemes. They include programmes to provide free energy efficiency measures, subsidies for low-carbon energy and incentives for home and business-owners to produce their own renewable power and heat.
But whether you know about them or not, the costs are going up, fast. For a typical dual fuel energy customer, these schemes now cost more than three times what they did in 2005.
We agree wholeheartedly with the aims of these schemes: help for the fuel poor, support for low-carbon energy and improved energy efficiency. They will help the UK to meet some of its long-term economic, environmental and social objectives. But they represent a cost to society that most people aren’t aware of and it’s not spread fairly. They are what some would call stealth taxes, many of which were introduced by the very same politicians now so outraged by rising prices.
Forget 2015, let’s do something about bills now
A few weeks ago, Ed Miliband (who as Energy Minister played no small part in bringing in these schemes) grabbed the headlines by promising to freeze energy prices for 20 months. Plenty has been said about the feasibility and even the legality of this, but I for one was glad to see Labour addressing the very real problem of rising energy costs – which are the real story behind today’s announcement.
We, too, want lower energy bills for our customers. But why start in 2015? Let’s do it now in a way that will make bills cheaper and fairer for good. Let’s take the so-called ‘stealth taxes’ for government policies out of energy bills and pay for them through taxation instead. Taxation is progressive: those who can afford it pay more and those who can’t pay less. We reckon this would take over £110 a year off the average energy bill, and that figure is set to get bigger as the cost of government schemes increases.
We’re here to help
In the meantime, I have a clear message for any customer worried about their energy bills: we can help.
Rising prices do not have to mean rising bills. Energy efficiency really can make a difference, and it already has. If energy usage had stayed at 2005 levels, the average bill would be around £400 more than it is today. There are schemes out there to help people improve the energy efficiency of their homes – please take advantage of them if you can.
We do plenty of other things to help vulnerable customers. For more information, read this blog by our Director of Customer Service, Tony Keeling. But we can’t do any of those things if you don’t get in touch. If you’re worried about your bill, don’t think twice about contacting us before the price rise takes effect on 0800 980 8831.
Unfortunately we can’t control energy prices. About 85% of a typical bill is made up of costs outside our direct control. But what we can control is how we treat our customers. So I end with a promise: we will continue to lead the industry on customer service – doing the little things that make a big difference, like calling you back when we say we will, trying to find ways to save you money on every call, and never cold calling you.
Today’s announcement was a difficult decision to make. But it makes us even more determined to do all we can to help our customers.