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As we Use Less Electricity and Gas Shouldn't the Companies' Profits be Decreasing?

By Edited Jun 9, 2015 0 0

Electricity & gas consumers complain that their bills at the end of the month are too high. However, most of these consumers have been prompted to initiate measures to guarantee they are consuming as little energy in the house as possible. If every consumer has been consuming less energy compared to the previous month, are the electricity and gas suppliers likely to run out of business because of decreasing profits?

We have been forced to change our lifestyles to guarantee we use less energy. We use natural heat and light whenever possible, switch off electrical appliances or lights when not in use and have spent fortunes insulating our homes to avoid any heat losses in winter. However, if every electricity and gas consumer has initiated even a few energy saving tips, shouldn’t energy suppliers be reporting decreasing profits in their financial books?

Energy Company Profits INCREASE

We have all seen the newspaper headlines every reporting season. Even in today’s depressed economy energy company profits are rising. Most countries have multiple energy providers who are supposed to compete with each other. Competition is supposed to drive prices down but it is not working in the gas and electricity supply industry; different companies all announce very similar price rises within days of each other, prices per electricity unit and per cubic foot of gas are almost identical in every company.

Energy Prices Rise

In the long term energy raw material prices will rise as raw materials become harder to find, but does that mean that company profits per unit sold must also increase? Companies’ returns on investment are increasing at the expense of consumers.

We all use fewer energy units, sit around in multiple layers and wear hats to keep warm at home, to use less electricity, gas and oil, yet still our electricity and gas bills go up every year. If all the increase was down to more expensive gas and oil people could understand it, but increasing company margins are the main reason for price increases.

Even in countries where energy prices are regulated the situation is the same, which suggests either that regulators are incompetent or that they are working within a framework that is biased towards the notion of increasing company profits rather than reducing prices.

Governments are partly to blame because they use high prices to encourage people to use less fuel and produce fewer carbon dioxide emissions. Some governments even add tax to electricity and gas bills to add insult to injury.

Consequences

People have to spend a higher percentage of their incomes just to keep warm, so they have less to spend on manufactured goods and services. Industry outside the energy sector is being affected by the lower consumer spending and needs to cut costs by manufacturing abroad where labour costs are lower, increasing unemployment in their home countries.

Industrial and commercial energy costs continue to rise alongside domestic price rises, and this in a depression where companies cannot raise their prices to pay for the extra costs, so they cut pay rates just to avoid receivership. Outside the state sector wages have fallen in every developed country as workers take pay cuts in preference to losing their jobs.

The Solution

Increasing energy company margins are at the root of our prolonged recession, some would say depression. We are only going to return to growth if politicians can grasp this thorny issue, overcome resistance and force energy companies to reduce energy prices and their profit margins.

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