Today’s Mail energy piece – hot gas from vested interests

The Mail seems intent on becoming a mouthpiece for the Big Six.

The Mail seems intent on becoming a mouthpiece for the Big Six

“Red Ed blunder blocking cuts to your power bills.”

Or so reads the headline of a piece in today’s Daily Mail, which quotes from “anonymous energy industry sources”.

It looks remarkably like the mega-companies are pushing for a Tory victory via their friends in the right-wing press, with one high-up source apparently telling the paper: “if [the polls] point to a Labour win, then reductions in bills are unlikely”.

Subtle.

These industry insiders – including “one of the most senior executives at a big six energy supplier”– are alleging that Miliband’s price freeze pledge is resulting in companies being too scared to pass on current low wholesale prices to customers for fear of being forced to keep them that way (if Labour wins the next general election, of course).

And yet the story relies upon the assumption that energy companies would otherwise have passed on lower wholesale prices to customers had it not been for meddling Miliband. Unfortunately for the Daily Mail, history doesn’t bear this out.

Consumer Focus research from 2013 revealed the relationship between retail and wholesale prices in the energy market before Miliband’s energy policy announcement. Needless to say, retail prices tend to bear little relation to the wholesale market. Here’s the electricity market:

electricity

And the picture is almost identical for gas:

gas

We therefore see the same image, most poignant looking at the 2008 crash. A £50 per megawatt hour (MWH) reduction in wholesale prices in late 2008 actually led to – guess what – almost zero change in the average cost to the customer.

Left Foot Forward covered this last month, noting a Times story which said: “over the next 12 months energy companies are forecast to make an annual profit from each dual-fuel household of £96, up from £91 last month and £44 a year ago” – on top of a 77 per cent per customer rise in profits among the Big Six last year.

This past few months alone, wholesale prices have plummeted for the energy companies while profits have soared:

lff pic

At the other end of the spectrum, wholesale price increases are almost always met with disproportionately huge retail price hikes, as Mark Ferguson at LabourList reported last year:

wholesale-vs-consumer

So, surprise surprise, energy companies’ profits are soaring while wholesale prices are plummeting – meaning there is plenty of money around to lower bills for customers.

Above all though, as the first two graphs showed, energy companies almost never lower their prices following reductions in wholesale costs – meaning today’s bluster about Miliband’s freeze pledge is just a load of hot gas from a paper which seems intent on becoming a mouthpiece for the Big Six.

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5 Responses to “Today’s Mail energy piece – hot gas from vested interests”

  1. itdoesntaddup

    A certain Ed Miliband was the minister responsible for energy between October 2008 and May 2010. Why didn’t he pressurise the energy companies to cut their bills when wholesale prices fell?

    There’s an answer of course. He took advantage of lower costs to foist a requirement to invest in expensive renewable energy and associated grid infrastructure via the Climate Change Act, knowing that wider margins would be required to fund the investment. He encouraged OFGEM to keep energy pricing opaque, so as to mask the expense of his plans. Indeed, his 2010 Energy Act writes into law an obligation for OFGEM to ignore consumer interests for lower bills where green interests are deemed at stake.

    His successors have followed a similar course. The appeal for fixed prices he made must have produced panic in the industry, because there was a risk that not only was there a risk of this being forced through after the election, but that Mr Davey might find the idea appealing and apply it immediately. The consequence was extensive hedging of commodity risk on a forward basis, followed by fixed price offers from the Big 6. This brought forward commodity purchases into a short timeframe, adding to demand and prices. Since it transpired that Mr Davey wasn’t going to upstage the fixed price idea, forward buying has ground to a halt, contributing to the collapse in prices. The banks and traders who took the risk on providing the hedges will now take their profits, leaving the consumers paying once again for the folly of politicians.

  2. blarg1987

    The 2010 Act was a revision of previous legislation drawn up cross party by politicians on BOTH sides of the divide.

    Yes Ed Miliband was secretary of State for the Environment but to lay the blame solely at his feet is misplaced.

    energy companies should have been investing in renewables and other infrastructure for years. Additional nuclear has been known about and required for well over a decade yet Hinkly C, is being negotiated on the eleventh hour, yes politicians are partially to blame but the big energy companies knew a big capital investment would be needed so have had years to prepare, instead they are fleecing us now and in the future.

  3. itdoesntaddup

    Politicians should have been pursuing a sensible energy policy aimed at keeping our costs down and our supply secure and diverse: for years they haven’t been. I agree the blame is cross-party in that MPs from almost all parties have voted for these disasters, but Ed Miliband has a large share in that alongside Huhne and Davey, and the rapid turnover of predecessors to Miliband while energy was part of DTI/BERR. Ministers must shoulder responsibility for the policies and legislation they promote.

  4. Leon Wolfeson

    The RO system we have discourages major capital investments.

  5. tbsbet

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