Material matters - Fuel for thought

Materials World magazine
26 Nov 2013

Right on cue with the first frosts of autumn and with the festive season approaching, the recent round of price increases for UK domestic electricity and gas supply has certainly sparked much debate, with politicians of all parties quick to denounce the so-called Big Six energy companies for unjustifiable increases, having earlier posted record annual profits. My own energy supplier, SSE, has just announced an 8.2% price rise, similar to the others and also on the back of record profits for the year ending March 2013. But let’s look beyond the headlines and a bit more closely at SSE’s accounts.

Adjusted profit before tax was indeed a record £1.41 billion, but so too was the £223 million tax bill and a £770 million dividend payment (from which HMRC takes a further 10% in tax). As a large percentage of the shareholders are not individuals but in fact pension and investment funds, these dividends are paying for anyone who receives a private pension, whether through a company scheme or annuity. SSE’s 19,975 employees were paid a total of £638 million, all paying tax and national insurance at an average of, let’s say, 24% (£153 million) and employers’ NI contribution of 10% (£64 million). So, in 2012, SEE generated more than £500 million in tax revenue for the Government, which makes me wonder if Energy Secretary Ed Davey realises that if customers are treated as cash cows by the energy companies, then we are also the Government’s flock of golden geese. What Davey also kept quiet about is that 11% of your gas and 16% of your electricity bill is made up of VAT and so-called green taxes. So, if he is serious about reducing fuel bills then that would be a good place to start.

But in the interests of balance, there is one charge levelled at the energy companies that does warrant closer attention, and that is the question of transparency. According to Ofgem, 67% and 58% of your gas and electricity bill respectively is down to wholesale energy, supply costs and profit margin. But as all the Big Six energy companies are vertically integrated – meaning they supply both the wholesale and retail markets – this means that one arm of the company’s cost is another’s revenue (and profit). I’m afraid even your correspondent baulked at researching a forensic analysis of SSE’s 188 page annual report, so it is difficult to say exactly what the company’s true profit margin was, or to comment whether that is reasonable or not.

Actually, I’d like to see a bit more transparency closer to home. Now that the majority of us pay our bills by direct debit, often with online paperless billing, how many of us really keep a close eye on what we consume? Do you use more or less electricity than you did 10 or 20 years ago? Has your gas consumption gone up or down? If it has risen, can you explain why and, more importantly, what can you do about it? I don’t track my household‘s energy consumption, but if I did, I’m sure that I would see an increase – not least because 20 years ago we didn’t have a plethora of electronic gadgets and the offspring who seem to have them permanently switched on.

If we are really serious about tackling rising bills and reducing our energy consumption (and we should be), a 10- or even 5-year rolling plot of energy use included with your bill would certainly make you think about switching off a few lights. So light a few candles, turn down the central heating, throw a sustainable log on the fire, switch off the TV and quietly reflect. Merry Christmas!