SSE Energy Costs Pie Chart

SSE marks up their expenses by 50% – and they don’t call that profit!

Just two and a half weeks after energy industry lobbyists, Energy UK, threatened higher bills and power cuts and just three days after the National Grid joined forces with warnings of winter blackouts if investment isn’t increased, SSE is the first of the Big Six to puts the threats into action: hiking dual fuel bills a whopping 8.2% and slashing all investment in new power plants until after the next election.

Blaming government social and environmental levies for a third of the price hike, SSE‘s chief executive, Alistair Phillips-Davies, told The Telegraph today that energy bills will keep on rising for the next decade, but would fall by £110 overnight if the levies were axed. Blaming the freeze in new investment on the “acute political uncertainty” around Labour’s threat to the Big Six‘s power, Phillips-Davies seems to be making us an offer we can’t refuse in a low tone of voice: accept the deal the Big Six are offering or we’ll have to punch your lights out!

Supporting his boss’s position on this lunchtime’s BBC News, SSE‘s Director of Customer Services, Tony Keeling, said:

Wholesale prices have gone up this winter, 4% compared to last winter. But it isn’t just wholesale prices. Actually, there are two other factors that need to be considered. The cost of getting energy to people’s homes has gone up 10%. And these government schemes, which actually account for about 10% of everyone’s bill, £110 a year for the average customer, has gone up 13%. And that’s what we think we should do something about.

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Oh well, that’s OK then. The 13% increase in government schemes is three times more than the 4% increase in wholesale prices, so the government levies do seem mainly to blame.

Except that’s not exactly how the energy cookie crumbles is it? After seeing how Energy UK played so fast and loose with the numbers on Channel Four News a couple of weeks ago we thought it might be worth checking SSE‘s sums.

According to SSE‘s website, this is how the costs of the average dual fuel energy bill add up:

Components of average energy bill - SSE
The costs that make up household energy bills – SSE.co.uk

Coincidentally (?) the energy regulator, Ofgem, released a breakdown of the average dual fuel bill on Monday. So, how do SSE’s numbers compare with Ofgem and Energy UK?

COST BREAKDOWN OF AVERAGE DUAL FUEL BILL (£ per £100)
SSE Ofgem Energy UK
Wholesale Energy 52.00 46.00 47.00
Network Delivery 24.00 23.00 20.00
Operating Costs 6.00 13.00
Social & Environmental 8.00 9.00
Investment 10.00
Profit 5.00 5.00
Taxes 5.00 5.00
Total 100.00 101.00 77.00

 
SSE‘s wholesale costs are 13% higher than Ofgem‘s. But in their press release, Understanding energy prices, on Monday Ofgem did make a point of saying:

“actual [wholesale] cost suppliers face could be higher or lower depending on how effectively they procure their energy. This is an area where they compete.”

So it seems SSE haven’t been procuring their energy very effectively. But with operating costs 50% lower than Ofgem‘s, they seem to be running their organisation much more efficiently, which is some compensation. The numbers in the remaining four categories are almost exactly the same as Ofgem‘s, and they do add up to 100%! So now we can use the cost increases SSE‘s Director of Customer Services, Tony Keeling, gave the BBC this lunchtime (above) to calculate how much they’ve added to the average bill:

SSE: COST INCREASES PER £100 BILL
£ Current % Increase £ Increase
Increase Announced £100.00 8.20% £8.20
Wholesale Energy £52.00 4% £2.08
Network Delivery £24.00 10% £2.40
Social & Environmental £8.00 13% £1.04
Total Extra Cost £5.52
Not Accounted For £2.68
Overcharged 49%

 
Well now. That can’t be right, can it? According to those calculations, government levies account for less than an eighth of the price hike, which is considerably less than the third SSE chief executive, Alistair Phillips-Davies, claimed. And total increases from wholesale, network and social & environmental costs add up to only £5.52, leaving £2.68 unaccounted for. So it looks like SSE are marking-up the real cost of their extra expenses by nearly 50%! And they don’t call that profit !??!!?

None of the experts the BBC interviews seems to have picked up on this. Which does make you wonder. If they haven’t spotted such an obvious discrepancy, does that mean there’s something wrong with our sums?

If anyone was going to check SSE‘s numbers you’d think it would be the energy watchdog Ofgem. We do pay them £50m a year to regulate the energy industry after all. Surely at least one their 360 employees would have been assigned to check SSE‘s sums?

Unfortunately the watchdog seems to be asleep in the yard. No Ofgem spokesperson appears on the television news and no statement appear on their website. Except … hang on a minute … what’s this:

OFGEM FINES SSE £10.5 MILLION FOR MISSELLING
3 April 2013

Customers contacted by SSE were exposed to misleading statements, inaccurate and misleading information on SSE’s charges and misleading comparisons between SSE’s charges and the costs with other suppliers. These failures meant that many customers were unable to make well informed decisions about whether to switch to SSE and about comparing products in a competitive market, and they were exposed to the risk of choosing a more expensive energy deal.

The level of fine reflects the seriousness and duration of breaches, the likely substantial harm that they have caused and the likely gain to SSE.

Misleading statements and misleading comparisons leaving customers unable to make well informed decisions. Isn’t that exactly the kind of thing we’ve discovered in SSE‘s price hike statements? So why are Ofgem and the BBC keeping schtum about it?

The funny thing is that, even though all the evidence is telling us that SSE are up to the same old tricks, we can’t really believe it.

If the BBC had asked the same hard questions about the SSE price hike as Bill Turnbull asked about SSE‘s fine in his interview with Ofgem‘s Ian Marlee on BBC Breakfast in April things might have been different. Unfortunately the BBC don’t make this clip available for embedding on other websites, but here are some edited highlights:

Marlee: Frankly this was a woeful catalogue of failures from the SSE management. They provided misleading sales scripts and frankly they allowed a culture of mis-selling to continue.

Turnbull: Would it be fair to say they were conning people on a grand scale then?

Marlee: In some ways worse than that. Their auditing processes were just not up to scratch.

Turnbull: There was another case with EDF last year when they had to pay a package of four and a half million pounds. Now that Ofgem’s been sorting out two of these energy companies it might lead some people to ask if the right people are running these businesses?

Marlee: Well we do have another three investigations underway actually into mis-selling which clearly we’re trying to sort as soon as we possibly can for consumers.

So it’s not just the processes they need to get right, it’s the culture. The management need to make sure that actually they’re taking all reasonable action to really make sure that consumers are getting the right information. Frankly the companies haven’t been doing what they need to be doing. They’ve made some improvements recently, but it’s not enough.”

If Ofgem and the BBC were taking all reasonable action to make sure consumers get the right information then it wouldn’t be difficult to figure out what was going on. But, because there’s no mention of SSE‘s fine for misleading and mis-selling in any of the BBC‘s coverage of the price hikes, we think there must be something wrong with our sums!

Could this be an example of what George Orwell tried to warn us about in Nineteen Eighty-Four? It’s not easy to keep believing that two and two add up to four when all our telescreens keep telling us it’s five!

So this is the mystery we have to solve now. Have we forgotten how to add up or are we really living in Nineteen Eighty-Four?

“Come, Watson, come. The game is afoot.”


 

5 thoughts on “SSE marks up their expenses by 50% – and they don’t call that profit!”

  1. I have just received a reply from Ed Davey, Secretary of State for Energy and Climate Change, explaining why my energy bill now has an additional Standing Charge on top of the recent increases. As a low energy user I have not had to pay this charge up until now but seems that something called the RMR (Retail Market Review) has just ruled that energy companies have to remove the two-tier tariff system in order to offer consumers more transparency (don’t you love it when they use the T word).

    Excellent! I hear you shout, you will be paying less. But wait, the new Standing Charge means that “some users could now face increased bills….but this is the fairest approach”. Well that’s alright then, we can’t have the energy companies out of profit. After all what they lose on the tariffs they gain on the standing change.

  2. Yet another con! It leaves you floundering around checking out one company after another only to find the same game is being played by all of them. Forgetting about the rip off prices just for the moment, I simply want to pay for the energy I use. But the message is clear, this is the most expensive way of getting it! Spend over a £1300 a year and tie yourself into a fixed deal and there are choices. If however you are a low user, forget it, they’re not after your paltry pennies, they can’t make enough profit out of you. No for you its the high energy tariffs on the first lump of kWhs used each quarter!

    Thanks for this clear description of the great energy con, it’s the best I’ve read. I only wish these clear facts were being presented in the mainstream media!

    1. We’ve been checking the price rises as they come in and it’s getting harder to believe they’re not just coming up with whatever numbers they need to fill their bills. The sloppiness of SSE’s adding up and the two vastly different breakdowns from Npower being just two examples:

      PERCENTAGE INCREASE BY SECTOR
      Sc.Pwr Npwr2 Npwr1 Br.Gas SSE
      Wholesale Energy 7 3 3 7 4
      Network Delivery 11 10 10 7 10
      Social & Environmental 16 31 31 38 13
      Profit 0 6 1,150 0 0
      COST INCREASES NOT ACCOUNTED FOR PER £100 BILL
      Sc.Pwr Npwr2 Npwr1 Br.Gas SSE
      Total Announced £8.68 £10.40 £10.40 £9.20 £8.20
      Wholesale Energy £3.50 £1.30 £1.26 £3.35 £2.08
      Network Delivery £2.31 £2.32 £2.41 £1.67 £2.40
      Social & Environmental £1.60 £3.53 £1.55 £3.58 £1.04
      Profit £0.30 £4.60
      Total ex VAT £7.41 £7.45 £9.82 £8.60 £5.52
      VAT @ 5% £0.37 £0.37 £0.49 £0.43 £0.28
      Total inc VAT £7.78 £7.82 £10.31 £9.03 £5.80
      Not Accounted For £0.90 £2.58 £0.09 £0.17 £2.40
      Overcharged 12% 33% 1% 2% 41%

       
      Your point about lower tariffs only being available for higher consumption is a clue to the mystery we failed to unravel in our analysis of the BBC‘s coverage of the British Gas price hike.

      If bulk discounts produce higher profits by increasing consumption then turning that on its head and demanding discounts for lower consumption would be a twofer – encouraging lower energy consumption and rewarding the frugal savers at the expense of the profligate wasters.

      You can understand why the banks and energy companies wouldn’t want to do anything like that, but not why the government or the BBC would want to support them!

      It’s becoming increasingly clear that the mainstream media has a vested interest in protecting the interests of the global corporations at the expense of the public. And they do it by blinding us with science: muddying the waters and stirring up strong emotions by misdirecting our attention to complicated political and economic issues beyond our comprehension and control to hide the clear and simple facts hidden right underneath our noses.

      What isn’t clear is why the BBC would want to help them do something that is such a direct contradiction of its own charter.

      It’s because the principles embodied in the BBC charter could still threaten corporate totalitarian power and propaganda, as they have on occasions in the past, that the other media corporations want it scrapped. But if the BBC disappears, any hope of a media that can inform and protect the public from the deceptions and manipulations of the global corporations disappears with it.

      That answer isn’t to get rid of the BBC, but to use whatever is left of the BBC‘s complaints process to hassle it relentlessly until it starts doing what it says on the tin.

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