MSE News: Government to announce energy crackdown

Consumerist

If the energy companies are now saying that they would welcome a Competition Commission enquiry and have nothing to hide then why didn't they say that in the first place. It seems clear to me that they were and remain contemptuous of UK consumer's complaints.

It is only because they have now been publicly denounced at the LibDem conference that they consider there has ever been a problem. With a weak UK Regulator, they didn't need to bother too much.

The new political dimension means that the spotlight is now also on the Regulator to properly regulate and perhaps to extend its powers of enforcement. Maybe it is this possibility which has changed the minds of the energy companies on the CC enquiry.

British Gas and Centrica, being British companies, will find it harder to hide their intra-company financial arrangements and so they continue to oppose any enquiry.

magyar

backfoot wrote: »

However,even though I asked,you didn't explain why Huhne's Supplier broadside wasn't warranted or why we should all be held to ransom because some of the same companies are involved in Generation.

I have to be honest here and say that having gone back and read the text of the speech, it's not nearly as bad as it's been reported. (full text here)

I might have to eat my words here and instead direct my frustration (as in fairness it usually is) at journalists and the way the story was reported.

backfoot wrote: »

Politics will always be a factor. Don't you think his team will have weighed up the risks you have spoken of? I just rightly believe we have all been done over by these dreadful companies for so long,even politicians have woken up to it.

Of course they will have gone through his speech carefully. I think the concern is that Huhne (and the general population) genuinely does not realise how close we are to disaster on the 'new generation/investment' front.

You have the problem that Huhne is at least partially concerned about voters and most importantly the media are far more concerned about readership.

Irrespective of his intentions, his speech ended up being reported on the front page of most dailies as "Huhne cracks down on energy company profits" or something similar. I can promise you that if you are a German/Spanish/whatever executive waking up and reading that you are just 1% closer to thinking "the UK's not the place to invest, I'll invest in Germany/Spain/Poland/Turkey/wherever" instead.

The point that you (correctly) make about separation of businesses doesn't really help. The profits from one still get consolidated at the top and help pay for investments into the other.

backfoot

It's wonderfully refreshing to find a poster who listens as well as comments.

:T

What would be the default position if EDF,RWE etc,didn't invest?

Would the Government finance the projects via UK companies?

Perhaps the angle is that? Another vote winner and good for our economy !

Genuine question.

magyar

They will always invest eventually, the key is about risk/return. Ultimately if the UK government agree to underwrite the construction costs and power prices, then these companies (and others, e.g. pension funds, insurance companies) will invest. But that means if there are cost over-runs or power prices fall through the floor - the UK consumer picks up the bill.

The trick is to get the balance just right: get the level of return JUST high enough so that these companies pick up the tab but take as much of the risk as they can. Huhne needs to play a very delicate game over the next few years. If he's out of jail, anyway

magyar

Just to follow up on Post #50: here is a further update from that same analyst.

The political attacks on the UK's big six retail energy suppliers intensified over the weekend with the opposition Labour party outlining a new policy that if implemented could effectively end the current integrated structure of the industry. Labour are proposing that the big six be banned from selling power directly from their generation businesses to their supply business. Rather all power would be sold to a central "pool". Labour are also proposing to impose "simple tariff structures" to aid transparency.

Ofgem is currently pursuing proposals to force the big six to sell 20% of their generation via auctions. Labour's proposals would effectively make this 100%. By itself this proposal does not necessarily negate the vertically integrated model (such models are used elsewhere) but it could if implemented in certain ways. Given that the vertically integrated model is the foundation for all investment decisions being taken by the big six then these proposals can only add to the already growing sense of uncertainty. They also feed the growing political narrative that suggests that the big six energy companies are a) responsible for rising prices, b) acting against the interest of consumers, and c) in need of tighter regulation and reform. Little of this is helpful for investor confidence

backfoot

magyar wrote: »

They also feed the growing political narrative that suggests that the big six energy companies are a) responsible for rising prices, b) acting against the interest of consumers, and c) in need of tighter regulation and reform. Little of this is helpful for investor confidence

I support totally a, b,and c.

Time for a different model as the current one has been disasterous.

I am interested in UK Customer Confidence. Quite like the labour proposal.

MillicentBystander

Cardew wrote: »

Totally agree that the energy producer/distribution company relationship could be investigated.

However it is illegal for, say, Centrica to subsidise British Gas(who they own of course) by selling them cheaper energy.

They wouldn't subsidise British Gas even if they were allowed to because their overpriced wholesale gas and electric is simply sold to the rest of the Big 6! It all goes into the same (Centrica) pot at the end of the day and their shareholders are paid dividends on the Group performance. If they subsidised British Gas so that they could undercut the rest of the Big 6 that would lead to the other 5 doing the same and would lead to a REAL price war - something NONE of the Big 6 want!

magyar

backfoot wrote: »

I am interested in UK Customer Confidence. Quite like the labour proposal.

... by which presumably you mean lower UK prices. This is where we need to get real - this is not going to happen. Prices are going to rise by at least 20-30% over the next few years to pay for new build generation.

Let me quickly give you an example of why Labour's proposal could be disastrous:

Let's say Big6Co wants to invest in a new gas fired power station. Under the current regulations they can agree to sell the power from their generation arm to their retail arm, but only at a fair market price. Typically, the retailer's margin will be in the region of 5-10% (depending on the plant itself). At the moment however you can take an investment decision assuming that's all 'group profit'.

However if you are forbidden from selling this to your retail arm, you cannot assume you'll keep this. End result is that the UK consumer will have to pay 5-10% more for the power plant through their energy bills. (And that, by the way, is on top of the 20-30% it will be anyway).