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

6.00% ,

5.OO% l

l

4.OO% l

3.00% i'

2.00%

1..OO%

O.OO% i

https:,//www ofgem,gov

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:

trL

=oG,0)@(!xoElolr.l

cfo)4,obrOGxaEtoUJ

7O.OO% 1

i

60.00% 1

50.00%

4o.oo% ,

10.00% l

o.oo%

https://www ofgem

SSE EBITDA Y" return on Generation Sales

^f'* T 2oo9 .zot2 ^ud,. # _v''r- -__;Jr* ^?€\"

2009 20L0 207L 2012gov. 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.

SSE Salesl\+

1?.OOo/"

i*E! -o\oI ^(o'to.oo% i-- -6I--Ic

L

=oOE

obo.!xoErotr,t

2.OO%

o.oo%

I https://www.ofgem.gov.u(l-'_'*__-

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 Sales1"\' 2009 -20L2

fi 6.00% -,oaI* s.oo%t!;s 4.00% +-*,P :.oozrot! 2.OOYI

! o.oox i* |tl

I https://www.ofgem. 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

?l0r -_29!2 ___s

5.OO%

o.00%

2009 20to 2077 20L2https://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 Sales2009 -20t2

12.OO%

10.oo%

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

E 8.oo%toH 6.00%s

e 4.oo%tot!

2.OO%

E.On EBITDA Yo return on Supply Sales

trL5oEoEO(!

>s

oF6ET

5.00%

450%

4.OO%

350%

3.O0%

2.5O/"

2.00%

7.50%

7-OOo/"

o50%

o.oo%

https://www.ofgem.gov. uk/ofgem-publicationsf 4764/enerWcompaniespublish20l2consolidatedseEmentalstatements. pdf2009 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.

t--I f.On EBITDA% rl

L2 I

ents.pdf I

_ __.-- , 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

cL

Pod,oboGsotoEI

LO.00%

9.OO%

a.oo%

7.OO%

6.00%

5.Otr/o

4.00%

3.00%

2.OA%

LA}%

a.ooYo

i zoog 2ato 2o7t 2oL2

t httpS://www.ofgem.gov.uklofgem-pu blicatio ns/7 4764/ener1ycompa niespublish20l2consolidatedsegmentalstatements.pdfL___-__._*

E.On's overall performance is a return of 6,72% on their business taken as a whole.

2.OO%

-I

i

lI

I

III

l

trLtod.oaotgsatot!

EDF EBITDA Yo return on Supply Sales2009 -20L2

7.50%

t.o0%

o.so%

0.oo%

-o.50%

-L.OO% o\o/\$.'

p'https://www.ofgem.gov.uldofgem-publications/74764/enetWcompaniespublish2O12consolidatedsegmentalstatements'pdf

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...'

rII

I

I

I

I

I

45.OO%

40.oo%

tr 35.00%

E, zo.oor"E$ 2s.00%

I zo.ooz

? ts.aooto- ro.ao%

5.OO%

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!

t -r1 EDF EBITDA% return on Total Sales i

II zooe -2c ii ra.oos6 il_-i

I zoos 2oro 2oLz i

I https://www,ofgem.gov.uk/ofgem-pu blicatio ns/74764lenet1Yc tements'pdf I

- -'----l

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.

50.00%

45.OO%

40.oo%tr

= 3s.oo%

P0,E 30.OAyoH zs.ooxx3 2o.o0%

i ts.ooxlrJ

10.00%

5.00/6

o.oo%2017 2012

-T::1:y*:t:1',:'::1 ry"':'*:y:::yT:r::l:1":T"':::1':::::T',T:':':1:l'*" --l

RWE suffered a smalldrop in profit percentage in Generation sales in 2012. At43.35% it remains

disgustingly healthy.

RWE npower EBITDA Yo return on Total Sales2009 -20L2

C

oE,oooo\oo\

oEtou,l

9.OO%

8.OO%

7.00%

6.OU/"

s.00%

4.OO%

3.OO%

2.OO%

L.OO%

o.ooa/,

2049 201.7 2072https://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

450%

4.OO%

3.50%

3.OOo/o

2.50%

2.OO%

1..50%

1..DO%

o.s0%

o.oo%

2009 2070 2011 2072https:.//www.ofgem.gov.uk/ofgem-publications/74764/energycompaniespu blish20L2conso]idatedsegmentalstatements. pdf

Scottish Power made a 3.OLYo return on Supply sales in 2012.

--tI

trL

oEohoo\od

oE6lrJ

2AO9

iI

I

I

L8,OO%I

L7.oo% +201.0 20LL 20!2

I https://www.ofgem.gov,uk/ofgem-pubticati ons/74764/energycompan iespublish20l2consolidatedsegmenta lstatements.pdf i

L*-.'*.'-- - ^.-_--]

Scottish Power saw a big decline in profit percentage in 2OL2, this is possibly due to the run-down at

Cockenzie.

Sc Power EBITDA% return on Total Sales2009 -20L2

LO.OO%

9.OA%

8.OO%

7.O0%

6.OO%

s.00%

4.OA%

3.OO%

2.00/o

L.O0%

o.oo%

2009 20LO 20L7https://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.

trL

od.(,brO(!xaEoUI

10.o0%

8.O0%

6.OO%

SSE

-2.OO%

-4.00%

' 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

be competitive.

EBITDA Yo return on Generation Sales

o\.o stA"1a6<c.i

EBITDA Yo ret Ies2oe

10

\o Ns 1-1-

:N >R ?Hu tz $d;>R E

-$3 >s-;(nlfl q

\OJrono.

ScPower E.On

\orOog.rl

4.OO%

2.OO%

o.00%

c

0,touoGsoEtoIJJ

2009-2

>s >el-. C.,l .o\o nn$

>< q 55rr.{O st

Centrica RWE764/energycompan consol datedsegmentalsta

ffi 2012>Rclt o\co st

fiil$x R *$rncnclm N^

6'.t c..l Oi NFl

E'Onofg m-publications/74

, 2009

,:.2010

201_1_

70.00%

60.oo%

! so.oo,z(l,

T, qo.oov"h0(!\0a 30.00%<'o6 20.OO%lrJ

10.oo%

o.00%

https://www.

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 Sales2OO9-2OL2 X H 2oos

L8.00% Q :?I S m2o1oL8.00% s) 3h \D

m 2o1o.oHd1.6.00% tsoo 2017N

c L4'00% N o =" o,2orz I

! ro No\N

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?