I watched the evidence given by the Supply Directors of some of the major energy companies,
usually referred to as the "Big Six" before the Energy & Climate Change Select Committee at the
House of Commons in the run-up to Christmas. They presented a uniform story of low returns which
no-one could consider were exhibiting evidence of monopoly or oligopoly profit.
I started work to investigate whether or not what they had said was true.
Scottish & Southern Energy show that their Supply business - their retail arm selling electricity to
customers was earning low returns. This position is illustrated in the graph below:
SSE EBITDA Yo return on Supply Sales
I was struck by the phrase "in our retail business" which was repeatedly used. I wondered what we'd
encounter if we looked at the rest of their business. Each of the "Big Six" is split into a Supply
business and a Generation business. The returns earned by the Generation business which produces
the electricity is shown below:
SSE EBITDA Y" return on Generation Sales
^f'* T 2oo9 .zot2 ^ud,. #
2009 20L0 207L 2012
gov. u k/o-fg-eh-p u b lications/7 4l 64/energyco m pa n ies pu blis h2012conso lidatedsegm e nta lstatements. pdf
Although returns have fallen in recent years SSE still earns over 50% on Generation Sales. Of every
f l earned from sales, over 50p is profit. No mention was made of this.
to.oo% i-- -6I--
Rather than the SYo return claimed SSE earn a 10% return on their business when Generation and
Supply are looked at in the round. So much for SSE, what about the others?
Centrica EBITDA% return on Supply Sales
1"' 2009 -20L2
fi 6.00% -,
;s 4.00% +-*,
! o.oox i* |
Centrica earn a good return of 7o/o on their supply business making them the most profitable of the
"Big Six" from this side of their operations.
Centrica's Generation arm performance is illustrated in the diagram below. This shows that they
have earned a 35.Ot% rate of return on EBITDA divided by sales in the most recent year for which
figures are available.
Centrica EBITDA Ys reiurn on Generation Sales I
2009 20to 2077 20L2
https://www.ofgem.gov.uldofgem-pqblications/74764/ enerryc:ompa niespublish20l2consolidatedsegmentalstatements.pdf
Profits from Generation are on the up and have increased ever quicker in 20L2.
Centrica EBITDA% return on Total Sales
The overall position for Centrica is very similar to that of SSE with a return being earned at just a
fraction less than 10%.
E.On EBITDA Yo return on Supply Sales
https://www.ofgem.gov. uk/ofgem-publicationsf 4764/enerWcompaniespublish20l2consolidatedseEmentalstatements. pdf
2009 2010 20Lt
E.On's return on Supply Sales to retail customers was 3.O9o/o in the most recent year for which we
have figures. This is as reported to the Energy & Climate Change Committee.
I f.On EBITDA% rl
_ __.-- , l
E.On's return on Generation Sales is 22.69%. This is clearly a lot more than the 3.O9% quoted.
E.On EBITDA Yt return on Total Sales
i zoog 2ato 2o7t 2oL2
t httpS://www.ofgem.gov.uklofgem-pu blicatio ns/7 4764/ener1ycompa niespublish20l2consolidatedsegmentalstatements.pdf
E.On's overall performance is a return of 6,72% on their business taken as a whole.
EDF EBITDA Yo return on Supply Sales
EDF's Supply business is the worst performing of the "Big Six" and has made almost no profit in the
last four years. Before you start to weep for them, we'll move along to the next diagram...'
EDF earned a whopping 40.63% return from their Generation arm in 2Ot2.They've kept the profit in
the part of the business which isn't exposed to much public scrutiny. Smart move!
1 EDF EBITDA% return on Total Sales i
I zooe -2c i
i ra.oos6 i
I zoos 2oro 2oLz i
I https://www,ofgem.gov.uk/ofgem-pu blicatio ns/74764lenet1Yc tements'pdf I
EDF's EBITDA return on Total Sales is over 16%. And to think we were near to tears after the first
graph. We're not crying now.....
EDF EBITDA ?6 re:turn on Generation Sales
RWE npower EBITDA %o return on Supply Sales
https://rvww.ofgem.gov.uk/ofgem-pu blicationslT4T64lefietWcompa niespublish20l2consolidatedsegmentalstatements'pdf
Bravo RWE npower, a year-on-year improvement in the performance of the Supply business has
seen it return to profit, posting a return of 3.92%in2012.
RWE suffered a smalldrop in profit percentage in Generation sales in 2012. At43.35% it remains
RWE npower EBITDA Yo return on Total Sales
2049 201.7 2072
https://www.ofgem.gov.u k/ofgem-pu blications/74764/energycompa niespublish20l2consolidatedsegmentalstatements'pdf
RWE's profits in their UK business are rising steadily reaching 8.L5o/o EBITDA over Sales in 201-2. This
is at marked variance from the protestations of doom usually heard from the company.
Sc Power EBITDA% return on Supply Sales
2009 2070 2011 2072
https:.//www.ofgem.gov.uk/ofgem-publications/74764/energycompaniespu blish20L2conso]idatedsegmentalstatements. pdf
Scottish Power made a 3.OLYo return on Supply sales in 2012.
201.0 20LL 20!2
I https://www.ofgem.gov,uk/ofgem-pubticati ons/74764/energycompan iespublish20l2consolidatedsegmenta lstatements.pdf
L*-.'*.'-- - ^.-_--]
Scottish Power saw a big decline in profit percentage in 2OL2, this is possibly due to the run-down at
Sc Power EBITDA% return on Total Sales
2009 20LO 20L7
https://www.ofgem.gov. uk/ofgem-publications/74764/energycom paniespublish2Ol2consolidatedsegmenta lstatements.pdf
Scottish Power has shown a decline in the return on Total Sales in each of the last four years. lt is the
worst performing firm in the "Big Six" in this regard.
' https://www.ofgem.gov.u k/ofgem-pu blications/74764/energycompa niespublish20l2consolidatedsegmentalstatements.pdf
Looking at all of the firms together gives us a slightly different perspective. ln terms of the Supply
Business dealing with retail sales to customers returns don't look abnormal and the market seems to
EBITDA Yo return on Generation Sales
EBITDA Yo ret Ies
N >R ?Hu tz $
l-. C.,l .o
>< q 55r
764/energycompan consol datedsegmentalsta
fiil$x R *$rncnclm N
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When we look at the Generation Sales the position is markedly different with SSE earning a 50%
return, RWE a 43%o return and EDF a 40% return. These show clear evidence of abnormal returns
above what would be expected in a competitive market.
The position shown above pre-dates the "Dash for Coal" which has now overtaken us. Returns for
2013 will be very much higher. lt also doesn't consider whether input costs for raw materials are
being adjusted by any of the players through intra-company trading (central group buying)'
EBITDA Yo return on Total Sales
2OO9-2OL2 X H 2oos
L8.00% Q :?
I S m2o1o
L8.00% s) 3h D m 2o1o.oHd
c L4'00% N o =" o,2orz I! ro NoN
fitz.oou" NX >R 388 x 3
&._^^^. nBN H s=a; t H
ScPower E.On Centrica EDF RWE SSE
https://www.ofgem.gov.u k/ofgem-pu blications/747 64/ene'8ycom pa niespublish20l2consolidatedsegmenta lstatements. pdf
What we have discovered for all of the companies is that their overall percentage return is much
higher than the retail profit percentages shared with the Energy and Climate Change Select
Committee. The Generation business is where the money is being made. This year's manoeuvres
mean that a much higher return will be made in 2013 than was made in2012.
Returns of over 50% make a mockery of the evidence given to the committee. These have gone up in
2013. Will anything be done?