Vir Cantium

I'm right, you know …

Kicking ‘em When They’re Up

A major player in British industry, and more importantly the global energy markets, has done well last year. It has made big profits.

The Beeb reports:

Energy supplier British Gas has reported annual profits of £571m at its residential arm, up from £95m in 2006.

Last month, British Gas said it would raise the amount it charges for gas and electricity by 15%, a move criticised by consumer groups and the Unite union.

Did I say just “profits”? I meant big evil stamp-on-the-workers-and-kick-an-elderly-pensioner-while-you’re-at-it profits.

The announcement followed increases from rivals Npower and EDF Energy, who blamed rising wholesale costs.
The news came as Centrica, British Gas’ parent company, reported a 40% rise in operating profits to £1.95bn.

It has called for a Competition Commission investigation into the way the energy market works.

So the wholesale market prices that all energy companies have to pay go up and … shock horror … the domestic energy suppliers prices go up. Conspiracy!

“Consumers will be shocked at this massive increase in profits,” said Tim Wolfenden from price comparison service Uswitch.
“They will be extremely disappointed and will start voting with their feet.”

Exactly. British Gas no longer has the state-sponsored monopoly it had as a nationalised industry, where it was answerable only to civil servants.

Centrica has increased its full-year dividend to shareholders by 17% to 13 pence a share, a move criticised by consumer group Energywatch.

“It is perfectly true that there is volatility in wholesale energy markets. But it seems equally true that such volatility hits consumers not shareholders,” said Adam Scorer, Energywatch’s director of campaigns.

OK. Let’s take this slowly for the financial newbies at Energywatch. A decent rate of dividend makes it easier to raise finance. When a company can raise finance it can invest in new technology, more efficient processes, expanding the business, and so on.

In fact, I have been beaten to it:

In a BBC interview, Centrica chief executive Sam Laidlaw said the company would use the profits to reduce the UK’s growing reliance on imported gas.

“We need to earn a return to invest in new sources of energy for the UK. Centrica is investing £1bn a year in new sources of gas and power… and all of that requires a return,” Mr Laidlaw said.

In other words, if you want the UK to be less dependent on Vladimir Putin’s mental state, the major player in the energy market needs to be able to invest. Oh, and need I point out that your pension fund probably has, or has had in the recent past, or soon will have, shares in Centrica?

It genuinely tires me to be doing another “lefty BBC” post, but it has to be done. At the end of the online article, we are asked the question:

Are you a British Gas customer? Do you think they are putting profits before customers?

“Putting profits before customers”. That phrase encapsulates the lefty worldview of how business works. Yet the only business that can sustainably put profits before customers is a monopoly, and most monopolies are kept that way by the state in one form or another. It may be a nationalised monopoly, which has to keep civil servants and ministers happy but not customers. Or, it may be a company protected from new competition by state regulation – which the same company has supported, not surprisingly – the costs of which invariably fall on either the customer, taxpayer or both. Either way, competition – and thus the interests of the customer – is not something the business in question has to worry about.

Most businesses however, and this now includes British Gas/Centrica, cannot make profits without customers, and if they abuse those customers they don’t make the profits? How much clearer can I put that?

Oh but of course, the BBC is one of those nationalised monoliths that generates revenue regardless of how happy its customers are. Takes one to know one, I guess.

In answer to Auntie Beeb’s question, though, surely if you said “yes” to the second question, you cannot have said “yes” to the first?

Oh, and for those who still believe that most taxes go to pay for schoolz’n’ospitals, Centrica’s preliminary results for 2007 (pdf, 0.30Mb) show a corporation tax provision of over £800 million. And that’s ignoring oil duties, VAT, Employer’s NIC on the thousands of employees … need I go on?

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