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The government needs to attack the enemies of energy consumers, including Ed Miliband

11 June 2014

‘I don’t know why energy companies invest in Britain,’ said a former energy minister to me a couple of weeks ago. He was referring to the lack of progress on shale exploration (more of which later), but he might easily have been talking about the politicisation of energy prices.

In case you haven’t heard, Ofgem, the energy regulator, has written to the Big Six energy firms to ask them to explain why the fall in wholesale prices over the past 12 months has not been passed on to the consumer. Another political row has broken out, with politicians on all sides claiming that the energy market is dysfunctional. They have cause to do so. Dermot Nolan, CEO of Ofgem, has added to that chorus by writing in his letter: ‘In a competitive market, I would expect the threat of losing market share to encourage suppliers to pass on sustained reductions in wholesale costs as savings to consumers as soon as possible.’

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The regulator should not have had to write this letter; the companies ought to have been making the argument themselves for some time. It is a relatively simple argument to make. Wholesale prices make up 46% of consumers’ bills. Most energy providers buy wholesale gas and electricity months, often years, in advance in the ‘forward market’ to protect themselves (and ultimately the consumer) from price volatility. Volatility is an uncomfortable fact of life in the global energy market, a consequence of variable demand and other factors. Buying in advance means that the consumer doesn’t feel the effects of price fluctuations immediately, and gives companies time to develop pricing strategies in order to maximise value for consumers. Many energy companies have stabilised bills this year as a result of passing on to the consumer the cuts to green levies that were announced in last year’s autumn statement. Recent falls in wholesale prices are not increasing current profits, as recent trading updates prove. Substantial profits are being reinvested to meet the challenges of climate change, increased demand, and rising transport and distribution costs.

Simple enough; yet for some reason the Big Six have to be prompted into action, which adds to the burgeoning impression that they are not overly concerned with their customers. At which point I’d like relate a personal anecdote. I recently received an urgent demand for £440 (with a mix of sticks and carrots to cajole me into paying the sum ASAP) from a Big Six company that does not provide my energy. Furthermore, I had contacted the company in question at the end of last year to establish whether they did or did not provide my energy; they said that they did not, and told me to contact a rival supplier (not one of the Big Six, as it happens). I asked both companies to update their systems; but, clearly, they did not do so. Fortunately, I had kept all of the earlier correspondence and the matter is being resolved, albeit at a preposterously slow rate. I have spent more than 20 hours over 7 months sorting this out – and I have the phone bills, emails and photographs of meter serial numbers to prove it. If this is what a truly competitive, functioning market is like, then Adam Smith was a threat to civilisation.

But, to give the energy companies their due, they are caught in a political trap that is, ultimately, harming the consumer. Labour never misses a chance to remind voters that it will introduce an energy price freeze. The Shadow Energy Secretary, the effective if opportunistic Caroline Flint, was at it again overnight, saying that the energy companies are ‘up to their old tricks’. The companies need to counter her arguments with the facts stated above. They might also point out that the uncertainty among investors which has been caused by the proposed price-freeze makes it less likely that they will pass on the current savings in wholesale prices to the consumer, because they need to prepare for an era of price controls at a time when they are making substantial commitments to meet environmental and social challenges.

The government (and indeed the pro-enterprise rump of the Labour Party) ought to be making that counter-argument to Miliband much more loudly than it is. There is an ideological battle to fight here, and the consumer (voters) will be the winner. Competition and the market work in theory; they must be made to work in practice. That requires the government to smack Ed Miliband even harder than they smack the hated Big Six.

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  • shiva

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  • Marketthinker

    The talk of ‘record profits’ continues to focus on the numerator and ignore the denominator. The government, through it’s climate change zealotry, has forced energy companies to invest large amounts of their shareholders’ money in green energy initiatives without apparently recognising that the shareholders need a return on that capital – politicians as ever are great at spending other people’s money. To deny a return is tantamount to confiscation. If you look at the overall return on capital numbers for most of the big six they remain in low single digits.

    • Bonkim

      Electricity is a commodity and they are using assets from the nationalised electricity days to make their money. Clear profit – it is more a service industry now.

      • Marketthinker

        It’s the billions in ‘renewable energy investments’ they have been required to make, especially in the grid as there are huge transmission bottlenecks. My point is that politicians think they can order companies to spend shareholders’ money on green schemes and then complain that the companies need a return on that capital. Looking at headline profit without looking at the underlying capital employed is the problem here. The eevil capitalist profit is actually a return on people’s savings not the play money of endless vanity politicians.

        • Bonkim

          If you look at responsible capitalism just look at Germany. They have a social conscience, have workers on board, jointly formulate wages and working conditions, and also quality of output. German Industry and business is profitable, high quality, world demand means huge exports. That is good business working together for all.

          The Electicity assets used by the big 6 and others in the UK was mainly constructed by the then nationalised industry – and book value low. Government hands out considerable tax-breaks and UK Corporation tax is low. Regards the green subsidies you will find the suppliers are slow to do what they are expected – many have yet to pass on the handouts given by government in terms of tax reduction for the purpose. Electricity business is a low-risk business.

          Suppliers have cash in hand with customers doing all the legwork, meter-reads, direct debits, etc,, etc. They employ call-centres and meter management subcontractors to do the hard work. It is easy money once you set the systems running.

          Suppliers don’t have to worry about transmission and distribution. Much of the renewable energy generated and bought by suppliers at knock-down rates as the domestic producers don’t use a lot of what they produce.

          Don’t shed any tears for the suppliers.

  • Bonkim

    Electricity suppliers’ job is to maximise profits. Denationalisation of the industry removed the responsibility for maintaining supplies and building new capacity or to generate power economically out of the hands of the suppliers. Ofgem is useless.

    Price of anything is what the market will bear. Consumers have been using ever increasing quantities of electricity and other forms of energy despite de-industrialisation in Britain much of it for leisure purposes. When people don’t think much about spending their cash on iphone contracts or SKY TV cost of electricity seems light in comparison.

    Stop using the stuff – you are polluting the atmosphere. Energy, land, water and mineral resources are running out on the back of ever more fancy ways of consuming material goods and energy. This can’t last long regardless of Ofgem or government attempts to make energy cheaper.

    • Lucy Sky Diamonds

      I already burn my household waste on the open fire in my front room.

      Fight the system!

      • Bonkim

        Watch out you don’t get all the nasty gases from plastics and chemicals in your lungs.

  • david trant

    how longer can those on the Right go on deluding themselves that privatisation of energy has been nothing short of a disaster, all polls show that 70% of the public want energy renationalised, the public know the truth why don’t you?

    The obvious solution is to divide the suppliers and generators from the retailers and for National Grid Transco to become the sole purchaser of energy and the distributor to the retailers. This would be done by a bidding system to cover demand, cheapest first, and then sold on to the retailers at a uniform price per kwh, which is declared every single day so consumers can compare how much they are paying to the retail price. NGT would be audited by the regulator every year to ensure that the country is receiving the best deal.

    • Rhoda Klapp8

      Because if the state runs a monopoly, it’s OK?

  • Alex

    But there are other companies to buy from. And quite a few people are switching to them now (it’s very easy). And if the other people aren’t then it’s probably because they won’t save much. So we would seem to have a competitive retail energy market. So if prices are high it’s 100% down to
    a) Government created costs and market uncertainty
    b) Increasing prices before Red Ed arrives to really mess things up.
    Note that UK energy prices aren’t particularly high for Europe, so if you think that the energy companies are ripping off the public you need to explain why they are being allowed to do it in every country in Western Europe. The answer is, they aren’t.
    Regulators and politicians are just posturing; it’s what they do.

  • realfish

    Confession time!

    • Mynydd

      If Mr Miliband had not shone the spotlight onto the energy market, the general public would not have known there are lower wholesale prices, and we would have gone on paying the forever increasing prices.
      With respect to passports, Mr Miliband is the Leader of the Opposition whose duty is to hold the government to account. Today he did the job he is paid to do, and held Mr Cameron/Mrs May to account for the backlog and the delays in issuing passports. As a result Mr Miliband, being a responsible politician, have forced Mrs May to open another Passport Office in Liverpool and increase numbers in all others.

  • davidhill

    I don’t know about only Ed Miliband but I do know that both Labour and the Cons sold the British people down the Swanny.

    Because this monopoly will now be a constant problem for the British electorate and where it was our illustrious politicians who allowed our energy companies to be sold off to foreign companies. Indeed it just shows how inept and lacking in foresight our political classes really are and where other EU countries blocked the sale of their energy companies under the reasoning of national interests and long-term security issues. But it is apparent also that they do not know how the so-called free market works, for if they did, they would have realised what a horrible mess this foreign ownership would cause – the British people being held to ransom in perpetuity by companies owned from foreign shores. But unfortunately don’t expect the regulators to bring about any meaningful change either, as these companies will
    get fined and where these costs will inevitably be passed on again to the consumer through hidden tariffs. Indeed big business has made it a part of their corporate strategy now to build in fines, as they know that they will break the law and fines will be the outcome. You only have to look at the global pharmaceutical industry to see this as a prime example and where as they have consolidated the market (got to be ever bigger conglomerates – the too big to fail syndrome), they have paid our tens of billions in only the last 5-years in out-of-court settlements (thus avoiding being held at criminal actions). Energy companies are no different and have a captive audience due to the ineptitude of our nobel political leaders over the last 25-years –

  • Kitty MLB

    Yes indeed, especially the ghastly Ed Miliband, who sees himself as the peoples saviour on this issue. And could someone stuff Ed Davey where the sun doesn’t shine.

  • Kaine

    Or we could just nationalise the lot and get rid of the rent-seeking middlemen who hide their profits by selling themselves their own product.

    Npower’s biggest shareholder are a group of German municipalities.
    EdF is controlled by the French state.

    Why, yet again, do we allow our essential national assets to be run by other European governments?

    • Andy

      You should ask Ed Fascist Miliband. It was he who allowed consolidation in the Energy market rather than more competition which is what the useless piece of scum should have done.

      And while you might hanker after the 1950/60s Nationalisation has been a complete and utter disaster. We should role forward with more privatisation, more choice and more LIBERTY.

      • Kaine

        Except consolidation and cartelisation is what happens in capitalism, particularly in markets for essential goods with high barriers to entry. When you criticise Ed for not preventing the rise of the Big Six you are criticising him for not intervening MORE.

        As I pointed out, two of our six energy companies are in fact partly nationalised already, just not by Britain. You don’t have a problem with this of course, because your main loyalty is to your individualist dogma, not this country.

        • Andy

          I’m criticising the worthless piece of sh*t for not applying competition law correctly. It was the useless Miliband who allowed the big six to be born. It was the useless Miliband who imposed all manner of ‘green levies’ – windmills and solar panels etc which are mostly useless. It was teh useless Miliband who did not encourage the building of new generation capacity etc, etc, etc. And I have a problem with Nationalisation. I do not have a problem with the free ownership of property i.e. shares freely traded on the Stock exchange.

          And my loyalty to this Country and its Sovereign is above question. I am an enemy of all scumbag Fascists/Socialists who are a danger to the Liberty of the people.

          • david trant

            And that was why we announced decisive action in the budget
            in the United Kingdom last week. The Chancellor announced that there would be long-term
            rises in the real level of road fuel duties and that Value Added Tax would be extended
            to the domestic use of fuel and of power. And in so doing he underlined Britain’s
            determination to meet our Rio commitments on Carbon Dioxide emissions. It makes no
            sense for the government to commit Britain to lower CO2 emissions but at the same
            time to be the only Western European government with no Value Added Tax on domestic
            fuel. It was, frankly, a text book case of perverse signals. Nor did it make any
            sense for the government to exhort motorists and manufacturers to choose and build
            fuel efficient cars while refusing to give them tangible incentives to make and to
            buy those cars.

            And we announced these measures in the budget but gave people time to adjust to the
            new signals, that is why the increases have been announced well ahead for a series
            of reasons. To give households the time they need to adapt and to invest in making
            their homes more energy efficient, to give car manufacturers, and for that matter
            car buyers, time to realise that in the 1990s there will be an increasing premium
            on fuel efficient cars and to enable the government to put in place special measures
            to protect the least well off from the impact of those bills.

            John Major justifying the imposition of the full rate of VAT on domestic energy in 1993. If the Tories had been successful the full rate of VAT on domestic energy would now 20%.

          • david trant

            Oh p.s. I’ve got lots more like that.

            If you want to take me on on the history of energy transmission, who did what to who etc. I’m more than happy to do so, or anyone who works for the Sextator, where getting pissed and getting your leg over seems to be the main qualification for getting a post there.

          • david trant

            On being Green.

            . David Cameron introduced 60 per cent of the green levies he now wants to get rid of

            Policies introduced by Cameron have added £67 to annual bills. The Energy Companies Obligation (ECO) was introduced in January 2013; the Carbon Price Floor came in in April 2013; the Warm Home Discount was introduced in April 2011; Smart Meters were announced in May 2013; and Feed-inTariffs were re-launched in June 2011. David Cameron has been Prime Minister since May 2010 if I remember correctly.

            2. Cameron has previously called for an increase in green taxes

            In opposition David Cameron said the following:

            “We’ve said publicly, we’ve committed that we think green taxes should take a bigger share of overall taxes.” – BBC2 Newsnight, 3 October 2006.

            “I think Green taxes as a whole need to go up.” – BBC1 The Politics Show, 29 October 2006.

            In office Cameron also pledged to lead the ‘greenest government
            ever’: “I want us to be the greenest government ever – a very simple
            ambition and one that I’m absolutely committed to achieving.” – speech at the Department of Energy and Climate Change, 14 May 2010.

            George Osborne also argued in 2007 that a ‘green tax shift’ would be
            ‘right for the environment’ but also make ‘economic sense’: “There is
            going to be a green tax shift which is right for the environment and by
            the way also makes economic sense.” – Today Programme, 3 September 2007.

            3. Cameron’s energy Minister says it’s ‘nonsense’ to blame green levies for energy costs

            Earlier this month, Tory energy minister Greg Barker said that
            blaming government levies for pushing up the cost for consumers was

            Martha Kearney: “We were hearing earlier in the programme from the
            company itself and in effect they were blaming government levies for
            pushing up the cost for consumers.”

            Greg Barker: “Well that’s nonsense. I don’t want to pretend that
            there isn’t a cost to investing in the grid and for the programs that we
            run to help keep people warm in their homes but the lion’s share of
            this increase comes from other costs.” – BBC World At One, 10 October 2013.

            Lots more to come!!

          • you_kid

            say no to nationalisation
            say yes to communitarian spirit of shared ownership

          • david trant

            And my loyalty to this Country and its Sovereign is above question.

            The more he proclaimed his honesty the more the urge to count the spoons.

            Ah VC was it?

          • Kaine

            You’ve just contradicted yourself. You cannot be loyal both to this country and to the markets that know no border. A man cannot serve two masters.

            • Andy

              I serve Queen Elizabeth. Who do you serve ?

              • Kaine

                The people.

                • Andy

                  Spoken like a true Traitor. You are an enemy of the people, not their servant. You serve yourself and an evil ideology.

                • Kaine

                  Says the man happy to see Britain looted by multinationals. You’d make Quisling himself sick.

                • Andy

                  The only Quisling around here is you.

                • Inverted Meniscus

                  Wheras as leftwing scum like you would simply build a gulag for anybody daring to disagree with you.

                • Inverted Meniscus

                  I.e your fellow socialist nutters as opposed to anybody productive who actually works for a living.

                • Kaine

                  Your shilling for rent-seekers isn’t productive work darling.

            • Inverted Meniscus

              That is an absolutely ludicrous assertion. There is no contradiction to being loyal to this country and being comfortable with a free market economy.

              • Kaine

                Yes there is, because you would oppose the intervention of government for the benefit of the people of this country in the actions of a ‘private’ firm, even if such action was democratically mandated. Ergo, you are on the side of your dogma, rather than that of the national interest.

                • Inverted Meniscus

                  yes but all will be well when you build your concentration camps to house everybody who isnt a sponging, worthless, unproductive piece of socialist scum.

      • david trant

        A publicly owned energy system transformed this country’s energy system both gas and electric from a total shambles to the finest energy transmission and supply industry in the world. Electricity prior to 1926 was a total disaster 600 companies some AC some DC with a variety of voltages, appliances couldn’t be used outside of their own area. By 1936 the Electricity Council had overseen the construction of a National Grid with a uniform voltage, a triumph of engineering.

        In 1948 the Gas industry which had suffered from under investment for years and was in danger of going into extinction in some parts of the country, again was transformed from coal to oil reforming and then onto LNG from Algeria and finally North Sea Gas, and an entire transmission system was built and the entire country converted, all on time and on budget.

        Within 20 years of privatisation all the hard work done by previous generations is being squandered and our most vital industry is now in the hands of pirates only concerned with looting.

        • Kaine

          Hear, hear!

          Technical point though, if the pirates are in the pay of foreign governments they’re actually privateers. 😉

        • Mynydd

          Well said, however there are many here that don’t accept facts. I would have added, pre-privatisation British companies designed and built the generation, transmission and distribution systems using British technology and capital. Now we have Mr Cameron/Osborne going cap in hand to China for the capital, and stopping over in France to beg for their technology.

    • dado_trunking

      I would go one step further than that:
      why do communities (socialism spoiler alert!) not own the locally generated/extracted energy product? That is not the same thing as nationalisation, btw.

      • Kaine

        Well indeed. If, say AGMA can run airports I’m pretty sure they could handle a few wind turbines. I’d still keep nuclear in central government control for obvious reasons, but everything else could go down the chain as and when the local authorities built it.

    • Inverted Meniscus

      Firstly, because nationalised industries do not work for the benefit of consumers, cannot attract quality management, inevitably fail and in the interim lead to higher and higher prices. Second, where do you propose to get the money to compensate the existing shareholders or are you simply advocating theft? I suspect the latter and would advise you that that would lead to the collapse of investment in the entire economy.

      • Kaine

        Your first point is utterly unsubstantiated. The move away from nationalised industries was about corporate profit and rent seeking, under an ideologically flawed manure that private is always, magically, better. The fact that two energy companies with a large democratic element in their ownership structure operate in Britain is demonstrable proof of the viability of such arrangements. Energy is not the same as cornflakes, the same rules do not apply.

        On the second point, there’s no need for your usual melodramatics. There are numerous ways to do it, from direct buy outs like Attlee did to setting up a public option, to empowering local authorities. Let’s do away with this nonsense about ‘investment’ though. Like the railways, it’s either our money already, given to these rent-seekers in direct and indirect subsidies such as the underwriting for nuclear power plants, or it’s contingent upon a strike price which is simply off-the-books debt.

        I believe in democratic accountability for those that control essential national assets, vital to life in this country. You prefer for those resources to be in the hands of unelected appointees, responsible solely to vast impersonal funds which own their shares. As I say, your first loyalty is to your dogma.

        • Inverted Meniscus

          So you advocate theft then. No regard for the fact that many of the shares in utilities are held by pension funds on behalf of private sector workers. They dont matter though do they as long as sponging, unproductive left wing scum like you get to dictate to the rest of us.

  • Peter Stroud

    ‘”…profits are being reinvested to meet the challenges of climate change….” Presumably this reinvestments include wind and solar farms. Both phenomenally expensive, inefficient, and intrusive. Not only has global warming not occurred for nearly eighteen years, but the billion dollar climate models failed to predict its demise. All we hear now is that energy has sunk to the bottom of the oceans, accompanied by energetic arm waving, because there is no real science behind the statement. Forget man made climate change and begin fracking, big time.

    • Kaine

      “Not only has global warming not occurred for nearly eighteen years”

      Oh please, not this nonsense again. That’s not what the Met Office said, that’s just what Mr Rose in the Mail told you.

      Feel free to cite a peer reviewed paper (not a blog article or newspaper clipping) that supports your statement.

      If you’re going to tell me that there aren’t any peer reviewed papers because those evil environmentalists have got every scientific publication on earth to collaborate in a grand lie, then understand that is, by definition, a conspiracy theory, and you now have to provide evidence of that too.

      If you are then going to cite emails from East Anglia, be aware there have been numerous investigations from both Parliament and the US Congress clearing those scientists of any scientific malfeasance.

      If you’re then going to say those investigations were a cover up, be aware this is a second conspiracy theory, and you have to cite evidence that both legislatures connived to do so.

      I await with baited breath.

  • you_kid

    It’s brilliant isn’t it?
    In the left cover we have Red Ed advocating total regulation which is male cow dung, in the right cover we have Dave pretending to regulate and facilitating competition which is horse excrement.

    What choice!

  • proculharem

    Best smack Ed Davey.

    • you_kid

      What about those who feast on ample subsidies in a self-serving manner?
      The issue is far more complex than what Davey’s portfolio covers. He can only operate within his pay grade.

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