Friday, October 18, 2013

Heat or eat, live or die: the market will decide

Behind the rip-off increases in gas and electricity prices announced by British Gas is an industry dominated by six secretive corporations who take their cue from the international energy market to drive up profits. 

It should come as no surprise that the big six operate as an oligopoly, raising prices in unison whenever they can, but especially before the winter sets in. They decide whether people will heat or eat and, in the case of some, live or die from the cold.

While the market wholesale price for gas, for example, has risen and fallen since 2004 (see graph), the big six have ensured that the price paid by consumers has continued on its upward trend.  

Attempt to find out how the six operate and you come up against a brick wall of “commercial confidentiality”. Trying to get to the bottom of it all baffled Which?, the Consumers’ Association magazine. In its October edition it reported:

“And most of the trading they [the six] do externally just isn’t transparent – there are no details of how much electricity is sold or what prices were paid. It’s nearly impossible to find out how much your company paid for the energy it sells, and therefore impossible to work out if you’re paying a fair price as an end user.”

That’s not the end of it. Each of the major suppliers also has a power generating arm. They sell electricity to themselves. “However, this is carried out behind closed doors and the price the supply arm of the company pays to the generation arm isn’t made public.” The generation arms of these companies made average profits of about 20% in 2012.

Which? concludes that the companies are so cynical they don’t even care about losing customers as a result of price rises. In 2006, British Gas’ parent company Centrica raised prices by an astronomical 28.6%. Over 850,000 customers quit. But revenue from gas sales still rose by 15%.

You can just see British Gas executives laughing all over their faces following prime minister Cameron’s appeal yesterday for people to switch suppliers. They are not bothered in the slightest. As for them blaming the government’s “green tax” for the rise, it only accounts for 5% of your bill.

Although renewable energy now accounts for 11% of the total (even this output, by the way, is sold on the market!), Britain is still reliant on fossil fuels despite their proven connection to climate change and extreme weather patterns.

Gas and electricity prices have been rising steadily since 2004 – the year Britain first became a net importer of energy as North Sea gas and oil supplies began to fall way. Since then, first New Labour and now the ConDems have been thrashing around trying to devise an energy policy reliant on the private sector

The fact is that both the ConDems and One Nation Labour are in thrall to the corporations and the market. So we’re now faced with a market that protects profits at the expense of consumer plus the refusal of the state to create an ecologically-sustainable energy supply that breaks the dependence on fossil fuels.

Switching suppliers is, as we have seen, a bit pointless as the prices of the main suppliers are more or less in line with each other. Smaller suppliers are simply squeezed out. Labour’s idea of an 18-month price freeze sometime in 2015 is combined with a plan to “reform the market”. This is a sticking plaster approach rather than a solution.

The energy market itself is an obscenity. Fuel is a basic necessity, a social right. So no one should expect profit-driven generators and suppliers to deliver on this. Breaking dependence on the market would mean a massive switch to renewable energy generation. That will also require the return to public ownership of the energy industry.

Who is prepared to implement this solution is another question. The answer certainly lies beyond the political careerists at Westminster and a system that puts profits before people.

Paul Feldman
Communications editor


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