The Tories Lib Dems and the Big Six energy companies just don’t get it

It has been really interesting to hear the howls of protest following Ed Miliband’s announcement that an incoming Labour Government will freeze energy prices. Which? estimates that flaws in the energy market had already forced consumers to pay £3.9bn over the odds since 2010. The estimated cost of the price freeze is £4.3bn – so comparable to the amount the energy companies have unfairly extracted from consumers over the lifetime of this Parliament.

The energy companies claim that they need to raise prices in order to fund investment, but the fact is that they have failed to invest. Instead they have chosen to pay bumper dividends to shareholders. Profits for the “big six” which provide energy to 98 per cent of homes have risen sharply:

2009   £2.15 billion

2010   £2.22 billion

2011   £3.87 billion

2012   £3.74 billion

I am not the only one to find it amusing that the person defending these bumper profits (or to put the other side of the coin, failure to invest the money we have handed over in energy bills in new low carbon generation) is ex Tory MP Angela Knight – previously chief apologist for the banking industry.

The last Tory Government also allowed privatised monopolies to fleece us – something addressed by Labour in 1997 with a tax on excess profits. The advantage of Ed Miliband’s approach is it is a very visible example of Government righting the imbalance in power between ordinary people and the privileged few – whereas a tax would be seen as the Government looking after itself. Regulating monopolies (or market domination by a few players) isn’t revolutionary socialism – it is something that the United States of America does. The UK water and rail regulators decide how much prices can increase – giving the energy regulator the power to do the same isn’t going to end capitalism as we know it. In fact it will help many businesses, which have also felt the squeeze from increased energy prices.

Of course the prices freeze doesn’t actually address the long term requirement for investment in new and lower carbon energy – it just deals with the profiteering. On Ynys Môn there is overwhelming support for a new nuclear power station – and without new nuclear we aren’t going to be in a position to reduce our reliance on coal and gas – both of which are high carbon. The private sector is ready to invest, but the UK Government needs to agree the “strike price” – how much Horizon (now owned by Hitachi) will be paid for each megawatt of electricity.

And there’s the rub – because for all the talk about this being a “market” and the “private sector”, companies are demanding government guarantees as a precondition for investment. That’s ok with me – but we need to be very clear about who is taking which risks and what is a fair profit margin. There needs to be transparency and that means splitting energy generation from supply. Ed Miliband and Caroline Flint get that, being clear that the purpose of the freeze is to buy time for this to happen, with an Energy Security Board with responsibility for identifying our energy needs and providing a clear framework to deliver this and a Green Investment Bank with borrowing powers to support investment. As Which? have argued, we also need to move to a single unit price, which would make it easy for us all to understand what we are being charged and what other options are available.  Not only would this make things much simpler, it maximises the incentive to each of us to save energy.

Of course we are also hearing suggestions that the companies will hike their prices now in order to get round the cap. David Cameron and Nick Clegg need to be very careful here. If they allow the energy companies to profiteer even more than they have been already, the result of the General Election is a foregone conclusion. If they feel unable to act to protect the public, then they should make way for a Government which is.

You can read the full text of Ed and Caroline’s speeches and Ed’s letter to the energy companies here.

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