By Paul Homewood
The Energy & Climate Intelligence Unit (ECIU) was set up a few years ago with support from rich liberal foundations in the US and elsewhere, with the purpose of disseminating climate change propaganda.
It has been headed from the outset by ex BBC man, Richard Black, so it is not surprising that most of the information coming out of the ECIU is biased and often fake.
True to form, it has just published another grossly dishonest piece of spin:
The six companies that run the cables bringing electricity to homes and businesses across the country made annual average profit margins of 32% over the last six years, a new analysis concludes.
A Government review of energy costs is currently underway. Image: James Burrell, creative commons licence
This equates to about £10bn on the nation’s collective energy bill over six years (2010-15), or around £27 per home per year.
The analysis from the Energy and Climate Intelligence Unit (ECIU) found that these Distribution Network Operators (DNOs) paid dividends to their shareholders during this time amounting to 15% of turnover – roughly half of the final profit. This equates to almost £1bn (£850m) per year, or roughly £13 on the average domestic bill.
WOW! How dare they make a profit of 32% on turnover!
It is clear to see what they are up to. Gradually people are becoming aware of just how much the Climate Change Act is costing them. The ECIU of course remains in denial about this. Faced with the fact that they cannot dispute the facts, they choose to put up a smokescreen to convince the public that it is all the fault of the wicked energy companies.
The only trouble is that when you dig deeper, the real truth is not what they would like you to believe.
Let’s start with that £10bn figure. As they say, it is over six years, an average of £1.6bn a year. This figure pales into insignificance with the cost of the Climate Change Act, estimated to be £9.4bn this year alone.
Most people would, of course, assume that the ECIU are referring to the Big Energy companies themselves, who are often accused of profiteering.
But that would be wrong. As OFGEM show, the element of profit (EBIT) in energy bills is tiny, just 4.8% last year, and that is before tax and interest.
What the ECIU are talking about are the Distribution Network Operators (DNOs), who run the distribution network. Imagine that if the National Grid ran the motorways, the DNOs would run the A and B roads.
As such, the DNOs do not buy and sell goods on which to make a margin. Instead they are highly capitalised businesses, which effectively charge for using their assets.
There is a similarity here with service industries. Let’s take a simplistic example:
Tesco buy £800 of goods, and sell for £1000 – they make a margin of 20%.
Mr Bloggs, the plumber, charges £1000 for a job, and the cost of parts fitted was £100 – he has made a margin of 90%.
But has the plumber profiteered? Of course not, as most of his cost is his own labour.
Comparisons of profit as a percentage of turnover are irrelevant and misleading in these sort of cases.
Coming back to the DNOs, we need to recognise that most of their cost is capital, ie interest and depreciation. If we take the example of Electricity North West, top of the ECIU list, we find that their profit last year was £71 million, after tax.
But their equity was £764 million, so the return on capital was only 9.3%.
In total, the assets are valued at £3.3bn, so the return on assets would be much smaller still.
Much of the profit made needs to be reinvested of course, not least to upgrade the networks to cope with renewable energy.
According to the ECIU, the dividend last year was £30 million, giving a return on capital of 3.9%, a not unreasonable figure.
I would be the last to defend the DNOs or the National Grid, but they are regulated by OFGEM because of the monopolistic position they are in. If OFGEM were able to squeeze their pips any more, it would make little difference to our bills.
It also needs to be remembered that it was the government which originally sold off the grid, so taxpayers have benefitted.
There may be a case for renationalising the lot, but the government would then need to find tens of billions to buy them back, and then find the cash to plough billions more into upgrading networks. I suspect even Jeremy Corbyn’s magic money tree might struggle with that.
via NOT A LOT OF PEOPLE KNOW THAT
September 5, 2017 at 01:42PM
Iowa Climate Science Education 