Fuel Bills: Why They’re Walloping You

It’s that time of the year again. You know, the time when the gas and electricity bills plop on to your door mat. And boy, are they going to wallop you this time!

NPower has been the first gas company to post prices. Gas with them has gone up a stonking great 17%. Ofgem, the regulatory body for the industry, is wringing its hands and predicting price rises in excess of 10% all round this year.

Between 2003 and 2006 gas prices went up by nearly 40% and electricity by almost 30%. By the end of 2008 energy prices will be 75% higher than the 2003 level.

Distribution

There are six big energy companies that dominate distribution, selling 98% of all natural gas in the country. Ofgem is asking, ‘is this a cartel’? Well, strangely they are all members of an outfit called the Energy Retail Association. It costs £100,000 to join, which should keep riffraff like you and me out. But that money’s peanuts to the big energy companies. Meetings are in any case ‘private and confidential’. The big six meet every two months. What on earth do they find to talk about, apart from how much they can get away with on our fuel bills? And they’re getting away with a lot.

The average household energy bill is likely to be more than £1,000 this year compared with £572 in 2003. Meanwhile the big six declared £2 billion profits for the second half of 2007 and are set to top £4.5bn this year. Lucky for some! 85% of the population think they are ripping us off. 85% are right.

Oligopoly

In a sense, whether the energy companies actually sit round and conspire against the public interest or not is beside the point. A nod’s as good as a wink to a blind horse. One firm sets a price. A few weeks later the others all follow suit, ‘after you Claud’. Sure enough, British Gas was next up after npower with a 15% hike. The others know what to do.

It’s called price leadership and it’s classic oligopoly behaviour. Another sign that they’re carving the market up between them is that when costs go up, so do retail prices. But when their costs fall, we don’t get the benefit. Last year wholesale gas prices fell by 60%. But they only knocked 13% off our bills. This is textbook oligopoly behaviour. The definition of oligopoly is ‘they’ve got us over a barrel.’ According to The Sunday Times the six maintain their ascendancy by restricting supplies to potential competitors and demanding difficult accreditation and credit requirements for possible entrants. This is, of course, illegal.

How did we get in this pickle? Once upon a time we had a government monopoly firm generating and supplying electricity and another one supplying gas. In both cases the industry was set up by the government in the first place to feed private industry with the enormous amounts of energy it was burning up. For instance the electricity grid allowed different areas to share electrical energy and for the authorities to plan our energy needs over time. The story was that they knew exactly how many people would pop out to the kitchen during half time of the Cup Final to put the kettle on, how much energy the spike would demand, and how they would be able to supply it. If you think about it, how could a planned energy system come into existence without government planning and government intervention?

Since the industry has always been profitable, the money went into the government’s coffers and helped to pay for social services. Then the Tories privatised gas and electricity, claiming that competition would benefit the consumer in the form of lower bills. The Central Electricity Generating Board was broken up. Power generation was to be separated from retail supply. The suppliers would compete with one another; so would the generating companies and we’d have a classic competitive market.

And for a while it seemed to work. Older readers may remember how small independent suppliers sprang up and, to start with, offered good deals to secure your loyalty. Now they’re all gone, swallowed up by the big boys.

The good deals have disappeared with them. How could they have afforded them in the first place? The industry has always made monopoly profits. New entrants were prepared to cut you a slice of the action in order to get their foot in the door. They were bribing you with your own money!

Shop Around

You can still shop around. You can switch your account from npower to e.on for example. But Socialist Appeal is letting you in on a secret. There’s only one gas pipe to your house. And there’s only one electricity connection. The expense of setting up both networks was originally born by the state. It’s the same gas, whoever you buy it from! It’s the same electricity! Energy supply is naturally a monopoly. It should be owned, run and planned by the state on behalf of us all.

The market is dominated by British Gas, npower, e.on, Scottish Power, Scottish and Southern and EDF. Four of the big six are foreign owned. NPower for instance is owned by RWE, the German power generating company. German profits come before British consumers. Last year German energy prices fell. In France they rose just 4%. Over here they increased by 15%.

In other countries the government hasn’t been so stupid as to separate generation and supply. So ‘our’ energy companies have been fighting the foreign competition with one hand tied behind their backs. And they’ve lost.

There are strange goings on. Gas is produced in the UK, exported to Europe for storage and then sold back to us in winter when prices are high. We could store gas in Britain, but that would take government planning and control.

The energy companies say they can’t do any different: they are just passing on retail the wholesale increases from their supplier. It is true that Shell has just reported $27bn in profits, an all-time record for a European country. And Exxon Mobil is wallowing in $40bn profits. But our suppliers have not passed through price reductions when the oil and gas companies have been forced to cut their prices. Everybody knows OPEC and Gazprom are global oligopoly firms. So it was really just stupid to divide up UK suppliers so they have less bargaining power against the giants.
North Sea oil and gas are running out. But the government knew this would happen ten years ago and just sat around twiddling their thumbs. Now there’s a panic about power supplies and Brown has said we’ll have to go nuclear.

Nuclear

For decades they have lied to us about nuclear power, telling us we’d get ‘electricity too cheap to meter’. It was really all about nuclear ambitions of course – ambitions to develop nuclear weapons. Electricity generation was really a sideshow.

Private industry stands ready to supply us a new generation of nuclear power plants. It will be very profitable for them to build, of course. But we’re still paying the price of cleaning up after the last generation of reactors. We’ve had to pay £73 billion on decommissioning and safely processing nuclear waste, and the bill’s rising all the time. The big construction companies know perfectly well that if they leave a pile of nuclear ordure to posterity, no government in the world can do anything but clean up after them. So that’s what they’ll do.

These days they talk about ‘fuel poverty’. The government launched a crusade against it in 2001. Since then the situation has got worse and it is reckoned 1.2 million households will be fuel poor by 2010. What’s the point of launching a crusade when you can’t or won’t do anything about the problem?

Fuel Poverty

Allan Asher of Energywatch says, “This market is not delivering good value to consumers”. He is right. Ofgem is still bleating that we have a competive energy market in Britain, despite the evidence to the contrary. They are basically a figleaf for the big six. Gordon Brown calls the price rises ‘regrettable’. Isn’t he the bloke who’s supposed to be running the country? Really under capitalism big business runs the country. New Labour refuses to face facts – that the energy industry is run by a bunch of rotten profiteers. All they are doing is picking our pockets. It is high time they were taken over. Then we can provide everyone a warm home at an affordable price.

This article first appeared on Socialist Appeal.

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This post was written by Eric Hollies