Your view: what’s your energy bill paying for?

“We want the government and Ofgem to do more to rebuild trust in suppliers…”

If this is what Which? is about, it’s as must a waste of space as Consumer Futures (which, at least, has some statutory underpinning).

You need to look at the share prices of the EU’s major players (four of whom have subsidiaries in Britain):
https://www.iberdrola.es/webibd/corporativa/iberdrola?IDPAG=ENWEBACCHERRAMIENTASCOT&codCache=13757854035269001

Similarly to the big British and EU banks, most have taken a battering over the last 5 years from both external factors and national policy decisions. They, again like the banks, have inviegled themselves in to a position of being ‘too big to fail’ (TBTF) and they’re repairing their balance sheets at the expense of final consumers. (Even though Centrica and SSE are ‘independent’ they fell foul of the policies of successive Labour governments to keep prices low and they hollowed out and leveraged their balance sheets to avoid a repeat of the Gordon Brown ‘windfall’ raid of 1997.)

Faced with a requirement to meet climate change objectives and the failure of the British energy market model to provide timely and efficient investment in electricity generation capacity, the Government is pursuing policies unilaterally that are futile, counter-productive and excessively costly. This is a European problem and may be addressed only by co-operation at the EU level. A new DG COMP energy sector inquiry is required that will lead to fundamental structural changes; it is totally futile looking for a ‘review’ of the structure of Britain’s energy industry. The EU ETS must be fixed and the trade deal with the US must be agreed to speed up delivery of US LNG exports to the EU.

But the Government is totally incapable of engaging effectively with its EU partners (even if many central, northern and eastern member-states are reaching out to Britain.) It fears it would drive its core support in to the arms of UKIP and close off Tory party funding from the energy industry and the renewable energy subsidy junkies.

So we’re left with the usual dysfunctional and excessively costly muddling through.

Oh dear. It seems I’ve killed this conversation stone dead. It probably doesn’t matter. Despite publishing two well-researched reports which highlight the dysfunctionality of Britain’s wholesale and retail markets in electricity and gas, Which? does not seem to be interested in mounting a concerted campaign to demand the necessary remedies in the interests of all consumers.

But, even if it did, it probably would make no difference. The Government has embarked on a two-year re-election campaign and in this area is focused on getting its energy bill enacted, putting it to bed and managing the inevitably messy outcomes to minimise damage to its re-election prospects.

Because it is tackling symptoms and not seeking to remedy the underlying malaise in the British (and EU) markets for electricity, gas and carbon, unintended consequences will abound, energy bills will increase, there will be panicky efforts (but ideally after the next election) to ensure a sufficient electricity generation margin when large plants go off-line and the rent-seekers will make out like bandits at the expense of all citizens as consumers and taxpayers.

All perfectly predictable – and all avoidable. But who cares when there is an establishment collusion to ignore it – and consumers can be relied on to pick up the tab?

Hi, Patrick,

I don’t think Richard Lloyd’s statement registered on the media radar. But it gets to the heart of the matter. Final consumers and service-users are being taxed so as to generate extra revenue up-front to remedy previous and on-going policy, regulatory and corporate failures. But it is an implicit hidden tax. Governing politicians, policy-makers, regulators and the big energy companies will simply deny that it is being levied and that, in any event, additional costs will have to be incurred to alter the pattern of energy production and consumption so as to achieve long-term sustainability and security of supply. DECC’s continuous refrain, based on very suspect projections of future wholesale energy prices, is that final prices would be even higher in the future if the Government were not to pursue its current policies.

Final consumers in Britain are trapped by the structure and ownership of the electricity and gas industries. The current oligopolistic, vertically integrated supply structure with network monopolies was entirely predictable and inevitable. Such a structure would always act against the interests of final consumers, but, in the current situation, it is immeasurably worse, since the big companies are building up and repairing balance sheets that had been hollowed out previously or helping to repair recession and policy-related damage to their parents’ balance sheets. And they are attempting to do in the context of a step change in investment required.

None of them are willing or able to inject new equity. Their borrowing capability is constrained. So the only recourse is to extract up-front, part-financing of investment from final consumers via higher prices. It is damning evidence of the total failure of the British privatised model of energy competition and regulation. But British final consumers are totally trapped unless they can mount collective action to protect their interests. There is little prospect of this.

In contrast, many final consumers, for example, in Germany, though they are paying much higher final prices, are fighting back against the big energy companies by participating in local and municipal supply of energy. It is clear that many perceive the benefits out-weigh the costs in terms of higher prices. The decentralised structure of democratic governance in Germany facilitates this and the approach is spreading in to neighbouring countries.

Britain’s excessively centralised structure of democratic governance prevents this happening here. And, ironically, the more successful German and other continental consumers are in developing local, decentralised energy supply that displaces centralised supply by the big energy companies and reduces their profits, the more their subsidiaries in Britain will gouge final consumers here to repair their parents’ balance sheets.

The situation is even worse in the water and waste water industry with so many companies with hollowed-out balance sheets being taken in to private ownership. Thames Water’s demand for an up-front payment from service-users to part-finance investment is just the most recent example of the dysfunction.

The Government is trying to solve all the problems unilaterally with a plethora of costly and ill-thought through initiatives. A number of the problems may be resolved only via enhanced co-operation with Britain’s partners at an EU level. These relate to the malfunctioning EU ETS, the malfunctioning EU gas market and the structure of the dominant oligopolistic, vertically integrated energy suppliers.

At the national level, government will have to legislate on the financial structure of the utility supply and infrastructure businesses to ensure that investment financing is generated from a mix or retained earnings, borrowings and new equity – and not extracted up-front, as an implicit tax, from final consumers. As a quid pro quo it may have to develop and apply an investment recovery guarantee fund.

But the Government has already kicked off its re-election campaign, so nothing will happen expect more gouging of final consumers. The Labour party was so complicit in the policy, regulatory and corporate failures that are now manifesting themselves that it now has nothing useful to contribute. Which? is the only organisation that appears to be taking these issues seriously, but it has no political traction.

It appears that all final consumers of utility services are fated to be exploited mercilessly.