WATCHING THE CORPORATIONS
Who's Paying the Bill?
As big energy companies are refusing to lower their bills and profit margins, even as wholesale prices of oil and gas have fallen, poorer household are struggling to keep warm. The government, meanwhile, is still promising to do 'everything it can' to alleviate 'fuel poverty'.
A recent survey has suggested that more than 4.5 million elderly people in the UK will have to heat only one room in their home this winter to try to reduce their energy bills. The survey of 1,263 people aged over 60, conducted (without irony) by the British Gas Help the Aged Partnership, also found that one in four would stay warm by getting into bed rather than using heating. By the end of the year, an estimated six million households in the UK will be in 'fuel poverty', which is defined as spending more than a tenth of income on energy bills. Gas prices have risen by 51% since the start of the year, and electricity bills by 28%, putting the average annual household energy bill at £1,308. All six of the big energy companies in the UK had increased their bills last summer, for the second time this year, blaming rising oil and gas prices. On 5 July, EDF Energy gas prices went up by 22% and electricity by 17%. On 30 July, British Gas prices went up by 35% and 9% respectively. Other companies soon followed suite: on 21 August, E.ON raised its gas and electricity prices by 26% and 16%; Scottish & Southern did the same on 21 August, by 29.2% and 19.2%; Scottish Power on 29 August, by 34% and 9%; and finally NPower on 29 August, by 26% and 14%. Overall, according to statistics by the Organisation for Economic Co-operation and Development, energy prices in the UK have increased twice as fast as the EU average in the past year (29.7% compared with 15%). Earlier this month, global oil prices fell by 60% to their lowest levels since January 2007, amid fears over lower energy demand and worsening economic prospects. Back in July 2008, oil prices had peaked to an all-time high of $147 a barrel. As a result, UK wholesale electricity prices more than tripled during the first nine months of 2008, compared with the same period of 2007, reaching £72 per megawatt hour (MWh). But despite falling oil prices and, therefore, wholesale gas and electricity costs, consumers have seen unprecedented rises in their energy bills. Ed Mayo, the chief executive of watchdog Consumer Focus, a new merger of Energy Watch and the National Consumer Council, last month said: "The UK has a relatively free market, but the freedom to cut prices in the early years now seems to be the freedom to raise prices with impunity." In 2000, under the Warm Homes and Energy Conservation Act, the government pledged to do "everything reasonably practicable" to end fuel poverty in vulnerable households by 2010, and in all households in England by 2016. That pledge is looking more hollow by the day. As Treasury coffers are nearly empty (for basic social provision anyway), utility companies are being asked to 'foot the bill.' Last September, PM Gordon Brown announced a long-awaited £1bn package to help poor families pay their energy bills. The government wants energy suppliers to stump up the cash and, if they don't, the 'threat' of a windfall tax is awaiting them, as business minister Shriti Vadera hinted last August while speaking to the senior executive of one of the big energy suppliers. Yet, a recent report by energy regulator Ofgem exempted the Big Six from blame, saying they were "not colluding" on price and claiming that the market was "working well for most consumers." Retail price controls were removed between 2002 and 2006 by the regulators of the energy, communications and postal industries. Consumers were given the opportunity to switch suppliers when price controls were lifted, forcing suppliers to compete on price and quality of service. A National Audit Office survey, however, showed that a quarter of electricity customers who had switched ended up with "a worse deal." Tony Woodley, general secretary of Unite, one of many unions that are demanding a windfall tax on utility companies and an overhaul of the energy market, said: "Galloping price rises and light-touch regulation have hit hard-pressed consumers with a double whammy: they are forced to pay sky-high prices for an essential commodity and a toothless regulator that fails to bite back in their favour." Many unions and MP's have been calling for a windfall tax on utilities similar to the £4.5bn one levied by the New Labour government in 1997. However, many argue that the two are not comparable for many reasons, and a windfall tax is unlikely to be imposed on energy companies now, as Brown himself admitted recently. This is partly because, back in 1997, it was accepted that the recently privatised utilities had been sold off too cheaply and benefited from an overly lax regulatory regime, which allowed companies to make 'superprofits', as Chris Sanger, former adviser to Brown in the Treasury, put it. The tax was also in Labour's pre-election manifesto and was supposed to be a one-off. But the main reason, perhaps, why energy companies are so confidently resisting any move for a 'tax raid' is that they are in a strong position as the government well knows. After all, the government wants these same companies to build new power stations and thousands of wind farms to meet new renewable energy targets. Earlier this year, the UK government signed up to a European commitment that would require about a third of all UK electricity to come from green sources by 2020, compared with barely 5 percent at the moment. It is estimated that building the new kit, including thousands of wind farms, would cost at least £100bn. According to Ofgem, only £14bn has been spent building almost 50 gas power plants and renewable generators since 1990. Most energy companies think meeting these targets would be impossible. Nevertheless, they argue that they would need a 'healthy level of profits' to make the investment necessary to 'try'. For instance, Centrica, the owner of British Gas, plans to buy 25% of British Energy, assuming the £12.5bn bid by EDF for the UK nuclear firm goes ahead. The EDF deal still requires regulatory approval but the government is already sanctioning nuclear power, using scaremongering rhetoric concerning 'lights going out' to convince the public. The deal also represents the culmination of EDF's aims to increase nuclear power internationally, creating a new norm in the UK's power supply, where nuclear power was considered anathema. Concerted lobbying in recent years by a self-styled 'green' nuclear industry through lobby groups such as Supporters of Nuclear Energy (SONE) and PR agencies such as EDF's Lexis and Marketforce, has ensured that nuclear power has been repackaged and transformed from an anachronistic industry undermined by scandals, accidents and cheap oil and gas into a 'beacon of hope' and emblem of an 'energy-secure future.'
A recent survey has suggested that more than 4.5 million elderly people in the UK will have to heat only one room in their home this winter to try to reduce their energy bills. The survey of 1,263 people aged over 60, conducted (without irony) by the British Gas Help the Aged Partnership, also found that one in four would stay warm by getting into bed rather than using heating. By the end of the year, an estimated six million households in the UK will be in 'fuel poverty', which is defined as spending more than a tenth of income on energy bills. Gas prices have risen by 51% since the start of the year, and electricity bills by 28%, putting the average annual household energy bill at £1,308. All six of the big energy companies in the UK had increased their bills last summer, for the second time this year, blaming rising oil and gas prices. On 5 July, EDF Energy gas prices went up by 22% and electricity by 17%. On 30 July, British Gas prices went up by 35% and 9% respectively. Other companies soon followed suite: on 21 August, E.ON raised its gas and electricity prices by 26% and 16%; Scottish & Southern did the same on 21 August, by 29.2% and 19.2%; Scottish Power on 29 August, by 34% and 9%; and finally NPower on 29 August, by 26% and 14%. Overall, according to statistics by the Organisation for Economic Co-operation and Development, energy prices in the UK have increased twice as fast as the EU average in the past year (29.7% compared with 15%). Earlier this month, global oil prices fell by 60% to their lowest levels since January 2007, amid fears over lower energy demand and worsening economic prospects. Back in July 2008, oil prices had peaked to an all-time high of $147 a barrel. As a result, UK wholesale electricity prices more than tripled during the first nine months of 2008, compared with the same period of 2007, reaching £72 per megawatt hour (MWh). But despite falling oil prices and, therefore, wholesale gas and electricity costs, consumers have seen unprecedented rises in their energy bills. Ed Mayo, the chief executive of watchdog Consumer Focus, a new merger of Energy Watch and the National Consumer Council, last month said: "The UK has a relatively free market, but the freedom to cut prices in the early years now seems to be the freedom to raise prices with impunity." In 2000, under the Warm Homes and Energy Conservation Act, the government pledged to do "everything reasonably practicable" to end fuel poverty in vulnerable households by 2010, and in all households in England by 2016. That pledge is looking more hollow by the day. As Treasury coffers are nearly empty (for basic social provision anyway), utility companies are being asked to 'foot the bill.' Last September, PM Gordon Brown announced a long-awaited £1bn package to help poor families pay their energy bills. The government wants energy suppliers to stump up the cash and, if they don't, the 'threat' of a windfall tax is awaiting them, as business minister Shriti Vadera hinted last August while speaking to the senior executive of one of the big energy suppliers. Yet, a recent report by energy regulator Ofgem exempted the Big Six from blame, saying they were "not colluding" on price and claiming that the market was "working well for most consumers." Retail price controls were removed between 2002 and 2006 by the regulators of the energy, communications and postal industries. Consumers were given the opportunity to switch suppliers when price controls were lifted, forcing suppliers to compete on price and quality of service. A National Audit Office survey, however, showed that a quarter of electricity customers who had switched ended up with "a worse deal." Tony Woodley, general secretary of Unite, one of many unions that are demanding a windfall tax on utility companies and an overhaul of the energy market, said: "Galloping price rises and light-touch regulation have hit hard-pressed consumers with a double whammy: they are forced to pay sky-high prices for an essential commodity and a toothless regulator that fails to bite back in their favour." Many unions and MP's have been calling for a windfall tax on utilities similar to the £4.5bn one levied by the New Labour government in 1997. However, many argue that the two are not comparable for many reasons, and a windfall tax is unlikely to be imposed on energy companies now, as Brown himself admitted recently. This is partly because, back in 1997, it was accepted that the recently privatised utilities had been sold off too cheaply and benefited from an overly lax regulatory regime, which allowed companies to make 'superprofits', as Chris Sanger, former adviser to Brown in the Treasury, put it. The tax was also in Labour's pre-election manifesto and was supposed to be a one-off. But the main reason, perhaps, why energy companies are so confidently resisting any move for a 'tax raid' is that they are in a strong position as the government well knows. After all, the government wants these same companies to build new power stations and thousands of wind farms to meet new renewable energy targets. Earlier this year, the UK government signed up to a European commitment that would require about a third of all UK electricity to come from green sources by 2020, compared with barely 5 percent at the moment. It is estimated that building the new kit, including thousands of wind farms, would cost at least £100bn. According to Ofgem, only £14bn has been spent building almost 50 gas power plants and renewable generators since 1990. Most energy companies think meeting these targets would be impossible. Nevertheless, they argue that they would need a 'healthy level of profits' to make the investment necessary to 'try'. For instance, Centrica, the owner of British Gas, plans to buy 25% of British Energy, assuming the £12.5bn bid by EDF for the UK nuclear firm goes ahead. The EDF deal still requires regulatory approval but the government is already sanctioning nuclear power, using scaremongering rhetoric concerning 'lights going out' to convince the public. The deal also represents the culmination of EDF's aims to increase nuclear power internationally, creating a new norm in the UK's power supply, where nuclear power was considered anathema. Concerted lobbying in recent years by a self-styled 'green' nuclear industry through lobby groups such as Supporters of Nuclear Energy (SONE) and PR agencies such as EDF's Lexis and Marketforce, has ensured that nuclear power has been repackaged and transformed from an anachronistic industry undermined by scandals, accidents and cheap oil and gas into a 'beacon of hope' and emblem of an 'energy-secure future.'