Centrica profits: how gas companies play the ‘wholesale costs’ card

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The bottom line of Centrica’s soaring profits is that they won’t tell you their true bottom line. Citing wholesale gas price rises as the reason for rising domestic energy bills is as cynical as it is simplistic, but given the opacity shrouding the gas market, it’s an easy and perennially touted excuse for gas companies seeking to deflect criticism of their fuel charges.Thanks to a mixture of lax

regulation and public unawareness, Centrica and its peers can play the wholesale costs defence card time and again whenever they bump up household bills – even though they are far less keen to put retail prices down again whenever wholesale costs fall. But even if they did rush to reduce bills in line with the wholesale market, pretending that they are victims of circumstance is unbelievably brazen.I worked in this sector until recently, and one trader I spoke to scoffed at the idea that utilities are held hostage by the rising price of short-term gas contracts, stating that utilities’ hedging strategies are far more sophisticated than simply relying month-by-month on the fluctuations on the wholesale market. Gas can be bought up to five years ahead, so pretending that suppliers are incapable of securing their supplies at more financially clement periods is misleading.In fact, by having the freedom to revise prices upwards at will, and without any proper intervention by the toothless regulator, supply companies have a win-win situation every year when it comes to their balance sheets. As another trader put it to me: “The customer always pays. If they don’t hedge and wholesale prices fall they make cash, if they don’t hedge and wholesale prices go up, they blame the market and put retail prices up. People should be asking why didn’t they buy when wholesale prices were lower?”

via Centrica profits: how gas companies play the ‘wholesale costs’ card | Seth Freedman | Comment is free | guardian.co.uk.

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