Npower and Scottish Power jump on the price rise bandwagon

What on earth would an ‘independent expert review’ achieve? Most of the so-called ‘experts’ are compromised, constrained or conflicted in some way. In any event, even if these ‘experts’ described the current situation honestly and accurately – extremely unlikely because their terms of reference would be drafted to prevent this – and concluded that the current energy industry structure in Britain and the framework of policy and regulation are totally dysfunctional and that these are incapable of bearing the burden of implementing the climate change agenda what on earth could a supine, frequently by-passed and Government-dominated Parliament do to remedy this?

Although Britain pioneered this flawed model of privatised, liberalised electricity and gas industries – with a mix of competition and regulation – which is being applied throughout the EU and most developed economies – with the notable exceptions of the US and Canada – very few of the problems may be resolved in Britain. The main problems are at the global and European levels and it is at these levels that remedies will be found.

Wholesale gas prices in Europe are far higher than they need be – and this feeds in to higher electricity prices since most of the time in most markets gas-fired generation sets the wholesale price of electricity. These gas prices are higher than they need be because the EU’s major external suppliers are able to exercise (abuse) far too much market power. For far too long there have been cosy deals between the big European gas buyers – the EU’s Big 7 (four of the UK’s Big 6 are subsidiearies of 4 of these) – and the external suppliers that have exploited final consumers. Up to recently the major EU national governments (of France, Germany, Italy, for example) supported and encouraged the cosy deals struck by their energy ‘national champions’. It is only recently that DG COMP of the European Commission has been allowed to investigate the antics of Gazprom in Eastern Europe which seriously penalises many gas consumers there. There is a requirement for much more concerted and coherent EU effort to impose some discipline on the external suppliers. Part of this would include putting pressure on the US as part of the EU-US free trade deal negotiations to speed up approval of LNG export facilities. It would also include modifying this stupid, British-originated Entry-Exit approach to gas transmission pricing and allowing a functioning market in pipeline capacity to emerge. This would facilitate increased interconnection and internal EU trade and further diminish the market power exercised by the external suppliers. It would also help to attract the investment financing required.

Since only it has the appropiate powers and authority, DH COMP should conduct a new energy sector sector leading to the break up of the vertically Big 7 and the other vertically integrated players that dominate the smaller national markets into production/generation/wholesale suppy businesses and retail businesses.

When it comes to network regulation, regulators claim they represent the interests of consumers. This is nonsense. They arrive at their regulatory decisions following negotiations with network owners and operators – with huge asymmetry of information. They claim to strike a balance between the interests of investors and consumers, but consumers are not represented independently in these negotiations. The public consultation process is a total sham. Consumers need effective, statutory advocacy and representation of their collective interests in open adversarial hearings against the networks owners and operators and with regulators making determinations on the basis of the evidence and testimony presented and tested. Consumers interests should be represented sinilarly in the inquiries and investigations of competition authories. The current statutory bodies, for example in the UK the CAS and Consumer Futures (previously Consumer Focus), are a total waste of space. Voluntary bodies, such as Which?, not surprisingly, are even less effective.

Finally, the tax treatment of investors in the long-lived, specific assets which characterise the energy industry must be addressed. The huge expansion of energy sector investment in the US which is moving it towards energy independence was facilitated by the existence of Master Limited Partnerships which pay no tax once they pass through all returns to the investors.

These are the remedies that are required. They will require effective engagement with the EU and concerted, coherent effort at the EU level. But with Britain edging towards the EU exit, we can forget British participation in the development of the necessary remedies.

I have only seen two smaller energy companies mentioned or represented in the many discussions, and at the House of Commons committee hearing, these are Ovo and Co-op. There are several others, one of which I have been with for several years and am as happy as I can be in a manipulated market. The company tells me regularly how this year’s usage compares with last, and I have clear indication of my unit cost so that I can do my sums. Cheaper bills would be welcome but that is up to the government, innit?