Energy Prices

I wrote about energy policy and energy prices a while back - and I said that governments of all colours have been intervening in the energy market for years in order to drive prices up - because they believe for different reasons (environmental and rebuilding the infrastructure) that energy prices are too low. 

And here's a report from the BBC's web site which supports my point, as the National Audit Office (a non political body) sets out its projections of what is likely to happen to UK energy prices over the next 17 years. 

So, if you ask me all this talk of temporary price freezes misses the main point - which is that governments cannot wish these issues away any more than they can turn back the tide - the real question is how much it will cost and who will pay.       

Energy bill hikes to last 17 more years - watchdog

Customers could be faced with funding huge infrastructure projects

Consumers face 17 more years of above-inflation increases in energy and water bills as they help pay for the renewal of the UK's infrastructure, Whitehall's spending watchdog has warned.

The National Audit Office added that "gaps" in the official analysis meant government lacked "an overall picture of affordability".

It expressed particular concern about low-income households.

But the government said it was "committed" to keeping bills down.

Fuel costs have become a highly charged political issue in recent months.

Five of the UK's six main energy companies have announced price rises, at an average of 8.1%.

On Tuesday, EDF Energy became the latest provider to increase bills, by an average of 3.9%.'Wider costs'

Alan Young, from energy company SSE, told BBC Radio 4's Today programme: "Standards in this industry do need to improve." But he denied his company was trying to make a "quick buck" from its customers.

"We're interested in making a sustainable profit that allows us to invest in the long term," he said.

"This country has had reliable supplies of energy. When people have gone to switch the lights on, they have come on.

"Have there been shortcomings in standards? Absolutely. Is there a commitment on our part to improve them? Totally.

"But fundamentally people have got reliable supplies of energy for their money. We're concerned that they should continue to do so, but in a way that is affordable."

In September, Labour leader Ed Miliband announced plans for a 20-month energy price freeze from May 2015, should his party win the next election.

And the government has launched a competition review and will review green and social charges, responsible for some of the cost of bills.

In an escalation of rhetoric, Liberal Democrat Energy Secretary Ed Davey told an industry conference on Tuesday that firms should not use customers as "cash cows".

The Treasury estimates that at least two-thirds of the £310bn of planned infrastructure investment over the next decade and beyond will come from private companies, ultimately paid for by consumers.

In its report, the National Audit Office (NAO) said it was estimated there would be an 18% average real-terms increase in household energy bills between now and 2030. For water, the figure would be 28%.'Decades of underinvestment'

The NAO also said: "Affordability can only be assessed taking into account all household bills, household incomes and wider costs of living.

"Gaps in analysis, and the lack of a common approach to measuring affordability, mean that the government does not have an overall picture of affordability, either for the average household or for those on low incomes."

The NAO expressed particular concern about the plight of the low-income households where energy and water bills accounted for 15% of spending in 2011 - almost double the overall average of 8% - while their incomes had fallen by 11% in real terms since 2002.

A Conservative source said: "We agree with the NAO that government should 'rigorously scrutinise all decisions on both value for money and affordability grounds', that is why the prime minister has announced that we need to roll back some of the green regulations and charges that are putting up bills at the Autumn Statement."

And a government spokesman said: "Decades of underinvestment have left the UK struggling with insufficient energy infrastructure, but we are committed to fixing the failures of previous governments, and to making the difficult decisions that will allow us to have the infrastructure we need.

"The government is committed to supporting hard-working families and that's why we're cutting tax for 25 million people and taking 2.7 million people out of income tax altogether by 2014, helping the most vulnerable with their bills, freezing fuel duty and sticking to the economic plan that has got all sectors of the economy growing."

Failing Markets

A backbench Labour MP - Graham Jones - won plaudits from his colleagues the other day for asking David Cameron at Prime Minister's Question Time (PMQs) why the government is prepared to intervene in the mortgage market but not in the energy market.

The implication being that the Coalition Government is soft on energy companies who keep raising their prices - unlike the Labour Party which, if returned to power, would be on the side of the consumer and would give these big monopolies a much harder time - for example by freezing prices.

But this is nonsense of course - because government (including the last Labour one) has been intervening in the energy market for many years with the deliberate aim of driving energy prices up - and not down. 

The reason being that energy has been regarded by all governments as generally too cheap and as a 'great polluter' into the bargain - so in the move to cleaner, greener forms of energy which is supported by all parties, of course, prices have to rise as a way of securing reliable energy sources for the future.

Which explains the big increase in wind energy, for example, which doesn't come cheap but is capable of helping the UK government to meet its international commitments on reducing global warming and preventing further climate change.

A specific area where this policy was pursued under the last Labour Government was in relation to the so-called 'fuel price escalator' (a different form of energy of course) which was due to keep raising the price of petrol year on year - as part of a cleaner, greener UK energy policy. 

Now the Coalition Government has stopped those planned price increases from going ahead - which is good news if you are a motorist, but bad news if you believe that global warming and climate change represent a real threat to world's future - witness the freak weather events that the UK and other countries have experienced in recent years.

All of this comes at the worst possible time, as it often does, when the economy is struggling to pull itself out of recession and people are struggling with household bills - but the choice, as ever, is the same between the competing demands of a viable, long-term and responsible energy policy - and the shorter-term interests of consumers who face a big hike in their household bills.

At this rate I can see nuclear energy making a comeback and/or the dumping of green energy targets - as politicians get into a 'bidding war' about which party, if any, is on the side of the consumer.

Whatever happens, I'm not convinced that a 'price freeze' is a sensible solution - because energy companies can just side-step any planned freeze by raising prices before and/or after  any Government legislation is due to come into place - which will clearly take some time. 

What would make more sense to me is a 'Windfall Tax' on energy companies that are deemed to be making excess profits and ripping off the consumers - although what I can't understand is why the industry regulator (Ofgem) appears to have been so ineffectual in championing consumer interests up until now.

In which case why not sack the regulator and appoint a new one?  

A final point to make is about Labour's claim to be the consumer champion where markets are failing - which rings more than a bit hollow when you consider the behaviour of the trade unions, particularly those operating in the public sector - where GMB, Unison and Unite completely dominate the 'market'.

In the much maligned energy market there are six big players - yet in the case of public sector trade unions only three - all of whom charge very similar fees and all of whom support the Labour Party - and all of this happens without the benefit of an independent regulator who can adjudicate in disputes between the consumer (ordinary union members) and the service provider which keep merging into ever larger organisations.