Both Ofgem and the UK government are failing us

I know that the French government own 85% of the electricity supplier EDF which is used by about 5 million households in the UK (around 11.5 million people). They’re putting prices in the UK up 54% but, at home in France, they are capping prices at a 4% increase on the orders of its principal shareholder….

Just shows what a caring government – or in this case one that is a ‘directing’ shareholder can do.

The UK government still seems to believe, in spite of the evidence of the Covid pandemic, that the ‘market will provide’.

It might for them of course, but not for the rest of us.

I was shocked that my mother’s electricity supplier has now doubled her standing charge from this April and although I’ve yet to receive any details from my supplier, I have friends that inform me that this is roughly their figure too.

When we are told that it is the energy prices themselves that are rocketing why does the provision of the infrastructure and distribution cost go up in tandem? It is not clear to me how transporting a therm of gas or an amp of electricity bears any relation whatsoever to the financial cost of the gas or electricity at the time.

Indeed I think this would appear to be a failure at the regulator, Ofgem.

Exhibit 1:

Enormous margins – the best anywhere! A FTSE100 company would ‘normally’ be expected to be around about 10%.

The ‘Exhibit 1’ chart is contained in the excellent Commonwealth think tank’s profitability report on the UK’s gas and distribution system.

Their chart on electricity distribution is even more unbelievable:

Western Power Distribution made a previously unheard of margin of 60.5%. Very nice work if you can get it, and when you run a regional monopoly – of course you can…

Now all this remarkable and regularly increasing profitabilty goes together with the normal stuff of ownership in tax havens, eye-watering dividend payouts, share buy-backs and lots of enhanced interest payments on internal borrowing – to such an extent that Wales and West actually paid no tax at all (page 13, lucky for some, of the report itself).

In short, the original privatisations and OfGem’s inadequacy have enabled the sucking out of wealth – or as economists might prefer, rent extraction, from the societies they serve.

This is actually government sanctioned financial engineering, for of course you cannot actually move gas and electricity delivery systems out of the societies that they serve.

We need Ofgem to get in gear and our government to act in our interests – like the French, with a directing share.

To those that say that government could not ‘afford’ renationalisation, the answer is that at 60% profitability, we cannot afford that the state should ever be so ignorant of those returns….

Of course, they aren’t.

The only difficulty is that the state investor in question is China, in the form of the China Investment Corporation, a branch of the Chinese government.

Comments

  1. Andrew -

    As I understand it, most of the increase in the electricity standing charge reflects the cost of the “supplier of last resort” scheme. When imprudent providers with aggressively optimistic business models fail (including unrealistically low introductory tariffs to grab market share), the cost is socialised to everyone on more realistic tariffs with more prudent providers that have not failed and who pick up the pieces. See https://www.theguardian.com/money/2022/mar/06/why-is-my-standing-charge-up-by-80-energy-firms-pile-on-the-agony.

    Perhaps that is the “market” at work, and no doubt better than some unfortunate people being cut off, but it feels like a failure of regulation to be in that position in the first place.

    1. Peter May -

      Thanks for that link – so the standing charge is misnamed as well!

  2. Graham -

    The “Standing Charge” is like a poll tax and unfairly hits small users most, the people who have to choose between eating and heating- if they are not already on pre-payment which is even more iniquitous.

    It’s a failure of politics. First the nonsense of Thatcher that the “market” knows best and that private is more efficient and second the failure of those who came after to reverse direction.

    The provision of power to households is one of the “social goods” why can’t it be free or the charges be related to usage or the ability to pay, progressive, like income tax is supposed to be?

  3. Schofield -

    Very clearly you have to be venially unhinged or incredibly lacking in critical thinking skills to believe Market Fundamentalism can operate without state and inter-state regulation. Even the human race’s use of money we now know has to be a creature of the state for reliability . I would also add that failing to achieve a balanced outlook on the role of the market and the state has to ultimately be influenced by the disfunctional mental condition of some human beings to persistently blame others. This I would argue ultimately stems from poor parenting.

    1. Peter May -

      There’s certainly a lot of the last – and generally not helped when people are given lives by their own government which promotes precarity.

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