The Competition and Markets Authority don’t get it. (It’s hardly surprising: the clue is in the name). The government doesn’t get it. The “it” in question is having a sane, rational and effective policy for the supply of energy (gas and electricity) in Britain.
Two news items on successive days last week illustrate what I mean.
After an 18 month long investigation, the CMA published its findings this week on the workings of the UK’s energy market and how it affects consumers. They found that 70% of consumers were on their supplier’s standard tariff. They concluded that, by failing to shop around, we were being ripped off to the tune of £1.7 billion pounds per year. Their proposed solution? To create a central industry-wide database of all those consumers too lazy (or busy, confused or with poor life skills) to have changed supplier in the previous three years.
In other words, it’s all those bloody consumers’ fault for not acting in accordance with the laws of free market fundamentalism, our guiding secular “religion”.
My earlier blog post Cat and Mouse explains my views on switching energy supplier. In fact, I did do some research within the last year on other suppliers – I’m currently with one of the oligopolistic “big six”. Living in a rural area, there is no mains gas supply – another example of how our market-based energy supply system has failed to provide a 21st century infrastructure, but I digress. Most deals are for dual fuel supply. It boiled down in practice to a choice between the devil I know and one other company, who could perhaps save me a bit over one hundred pounds a year. I then had an online search of customer satisfaction ratings of the other supplier. To put it crudely, they were crap. I’m fortunate enough to consider that £10 a month is not a big deal when judged against the potential hassle of getting through to the new company if anything went wrong. So I stayed put.
The proposed “solution” to the problem of “too many” people not switching suppliers entirely misses the point. All the companies are in the private sector. Public limited companies have a legal duty to consider returns to shareholders above all other considerations. There’s no real competition: gas and electricity (like water supply and railways) are natural monopolies. In the case of the energy firms, there’s no competition in the core service (the pipes and wires), but only at the periphery in billing and customer service. The only innovation in these has been to make the customer do the work of meter reading and moving to paperless billing.
Worse, the proposal throws up a whole list of new problems. There are 37 current energy suppliers, so there’s the potential for 36 lots of junk mail as competitors try to entice you. How safe is the database from abuse? Past experience of the security of centralised databases is not good, let alone one open to 37 companies. Fraudsters and scam-mongers will see another opportunity to exploit the unaware. The Big Six companies are bound to mount a legal challenge to other companies’ access to their lists of customers. And all because the dogma says competition must work.
There was fresh news in the oh-so-long-running saga about Hinkley Point C nuclear power station. You know, the one where the government has spent years trying to persuade the Chinese and the French state-owned EDF to invest in a massively expensive (£18 billion) and risky project to build two new nuclear reactors at the site.
The project is already years behind schedule. Last month, Chris Bakken, the project director, left his job. A week ago, EDF’s Finance director, Thomas Piquemal, left the company. He was known to be a critic of the Hinkley project. Then EDF’s chief executive threatened to pull out of the project unless the French government gives EDF further financial backing. And all this despite the UK government’s “inducements” (i.e. bribes) include offering the firm a guaranteed wholesale price more than double the market rate.
This project is the familiar tale of companies creaming off all the profits and leaving the taxpayer with all the downside risk. Electricity consumers, i.e. all of us, will pay over the odds for the electricity as a further subsidy. And for nuclear power, the downside risks are horrific. In Japan, five years after the tsunami and meltdown, the area around the Fukushima nuclear reactor is uninhabitable for another 24,000 years.
The Energy Elephant in the Room
For a decade or two, the spare capacity to deal with peak load in a winter cold spell has been getting smaller and small and is now dangerously low. Old, dirty fossil fuel plants and nuclear reactors have been closed own but insufficient new capacity has been built to replace them. Lurches of government policy towards renewals, in particular the Tories short step from “greenest government ever” to “green crap” has further deterred investment. It is likely the lights stayed on this winter only because of
There’s an elephant in this room. Energy supply should be renationalised. There’s a whole load of reasons: here are the most obvious:
- The logic of the market does not apply to a commodity (especially electricity) that should be affordable for all, as it is an essential basis of modern life.
- Markets are not good at making strategic decisions over the long term. The certainty of consistent government policy and funding are essential.
- The private sector shies away from hard to quantify risk, such as with nuclear power.
- The nature of energy supply is a natural monopoly, as mentioned earlier.
- Monopolies (and oligopolies as we have in the UK) in private hands will always lead to consumers being ripped off (because shareholders take priority over customers).
- Private sector pricing logic tends to disadvantage the poor with poor credit ratings or erratic payment histories, leading to increased inequality in net income after essentials.
Naoto Kan, Japanese prime minister five years ago, recently said the plan to build Hinkley Point C “did not make sense”. An industry analyst described it as “insane”. I would extend that description to the whole of UK energy policy. Above all, to the belief that consumers can be bludgeoned into behaving according to the diktats of free market ideology.
Madness, sheer madness!