The Gas Men cometh

While there may be some considerable doubt about whether Goebbels was, as the ditty claims, deficient in the testicular department (he had six children, after all), there is no doubt at all that he was a master of the black arts of PR. His statement that ‘If you tell a lie big enough and keep repeating it, people will eventually come to believe it’ has become one of the guiding principles (sic) of hucksters, politicians and ‘official spokespeople’ everywhere. How proud Goebbels would have been of the activities of the press officers of the big six energy companies, and in particular Angela Knight, the former Tory minister who is chief executive of Energy UK, over the past few weeks.

Between the middle of November and the beginning of December, the energy companies all announced price increases way above the rate of inflation. SSE started the ball rolling with an increase of 8.2% in both its gas and electricity prices and the others followed its lead within days –  British Gas announced increases of 8.4% for gas and 10.4% for electricity, NPower came up with rises of 11.1% and 9.3%. EDF and Eon cannily held off for a couple of weeks, rightly expecting the Government to make some concessions to their demands for relaxations to their environmental commitments, and then announced lower increases of 3.9% and 4.3% respectively.

United Kingdom natural gas timeline

According to Citizens Advice, gas and electricity prices are rising at up to eight times the rate of increases in weekly earnings. By January 2014, the big six suppliers will have raised their prices by a total of 37% since October 2010 and gas and electricity prices will have gone up at three times the rate of inflation, which has been 10.2% over the same period. Yet the energy companies claim that it hasn’t been their fault, but partly the result of rises in wholesale prices, and that their combined profits of £3.74bn last year were ‘not particularly big’. Angela Knight insisted that energy company profits equated to just ‘four or five pence in the pound’. However, in 1998, as the market was liberalised, the regulator, Ofgem, believed 1.5% was an adequate margin for energy suppliers. Profits in other sectors like supermarkets are as low as 2%.

Ofgem estimates that the energy companies’ average net profit margin has more that doubled over the past year from £45 a household to £95. As far as the claim that it’s all the fault of huge increases in wholesale prices, Ofgem says that ‘Our own weekly monitoring…estimates that, over the last year, the cost of wholesale gas and electricity to serve a typical dual fuel customer would have risen by around £10 to £610.’

The reality is, of course, that the Big Six energy companies constitute an oligopoly. They provide about 98% of all household energy and gas. They also control 74% of electricity generation. Wholesale prices may have gone up, but for the most part it has amounted to the companies’ distribution arms simply paying more to their extraction and generation arms.

The second claim of our Angela and the Big Six’s army of spin doctors is that they are burdened by crippling ‘green taxes’ – or David Cameron’s ‘green crap’. But  only £112 of the average £1,415 energy bill is represented by green and social levies. Some of these are the subsidies to support investment in renewables, notably wind; some to promote more energy-efficient homes, typically older houses occupied by Britain’s poorest; and some to install smart meters that will help consumers to better control their energy usage as well as automatically buying for them energy from the cheapest supplier. The Government has responded to Angela’s army by announcing that it will ‘roll back’ some of these levies and says that as a consequence, the average household will see about £50 come off their annual bill – which would be nice if was not following the current much larger rises. So for example, British Gas customers have just seen their average annual dual-fuel bills go up by £123, but a £53 cut in January will still mean a £70 rise for the winter.

This reduction is being paid for in two main ways. First, the Energy Company Obligation (ECO), the scheme under which the Big Six are responsible for insulating the homes of elderly and vulnerable people, introduced only in January 2013, has had its target dates delayed by two years. Second, the Warm Homes Discount, which offers rebates to some vulnerable consumers, will come from the Treasury’s coffers, rather than the energy companies. The government says this money will be found by ‘tackling tax avoidance’, so on current form the discount could well be quietly dumped after 2015.

The companies’ response to Milliband’s very modest proposal in September that energy prices should be frozen from June 2015 to the end of 2016 has been entirely predictable. There have been a slew of warnings from energy company spokespeople that essentially all add up to  ‘if you don’t allow us to put up the bills, the lights will go out.’ Because, according to people like  Paul Massara, NPower’s chief executive, the Government hasn’t provided the industry with enough subsidy and had saddled it with ‘green taxes’, the margin between Britain’s peak winter electricity demand and the capacity of its remaining power stations is narrowing. On a recent edition of Panorama he said; ‘The amount of spare generation that is around at the peak day has gone down from about 15 per cent to about five per cent and I think next winter [it] will be even smaller. So will we get through this winter? Yes. Will we get through next winter? I don’t know’.

English: 's wind turbines in the Sound near Co...

At the same time, the energy companies are scaling back some of their offshore wind power plans. Last month plans for a huge wind farm off the north Devon coast were shelved, while this month Scottish Power Renewables announced it would not proceed with the Argyll Array scheme, a £5.4bn, 1800MW project that could have powered a million homes.

It seems to be glaringly obvious to everyone apart from the functionaries of the three main parties of capital that a privatised energy production and distribution industry that exhibits some of the worst elements of both a fragmented and short term market and a monopoly is a ludicrously inappropriate vehicle with which to rebuild and decarbonise our energy infrastructure. A recent UK public opinion poll by YouGov showed 61% in favour of common ownership of energy and only 26% against. This shows the public are way ahead of the policy makers, at least in part because they are fed up with the way so many formerly nationalised industries are ripping us off.

Capitalism is a dynamic system that will always embrace the new and relentlessly follow the logic of prices and profit, an eternally restless agency for change. But it can only ever react to today’s prices, which cannot capture what will happen tomorrow. So, left to itself, capitalism will neglect both the future and the cohesion of the society in which it trades. The energy industry is a natural monopoly; the only rational and long term option for its operation for the sustainable common good is under democratically controlled public ownership.

This entry was posted in Capitalism, Environment, General grumpiness and tagged , . Bookmark the permalink.

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