Regulate prices at your peril!

Snigger:

E.on blamed industry reforms backed by the PM David Cameron as it revealed it was pulling its discounted ‘StayWarm’ tariff – which offers fixed-price energy for pensioners based on their actual use over the past year.

From next week, these customers will be “renewed” onto E.on’s standard EnergyPlan, which could be as much as £180 a year more expensive, unless they call up and try to find a different deal. E.on insisted it had no choice following proposals from the industry regulator Ofgem for energy suppliers to cut the number of tariffs they offer to just four per fuel.

The Ofgem proposals have been backed by David Cameron as part of his bid to improve transparency in the energy market and place people on the cheapest rates possible.

But industry experts have warned for months that Ofgem’s plans to remove “niche” tariffs will simply force up the average price in the market.

In a statement, E.on said: “Due to new Ofgem rules, which includes limiting the number of products we can offer, the StayWarm tariff will close as current contracts come to an end from 7 October.”

Insisting on only four tariffs is ignoring the most basic point about how producers try to slice and dice their market. Everyone is always trying to get the most they can out of the customer base in aggregate. And the way you do this is to try and segment said market. This group over here are rich so we’ll sting ‘em. This group over here is penny pinching so we’ll offer something cheaper. This is the explanation for the branded baked beans, the supermarket baked beans and the supermarket’s basics range of baked beans. It’s also the explanation for the different tariffs in the energy industry.

So, you cut the number of tariffs that can be offered and it’ll be the ones looking for the penny pinchers that go first, of course. For they are, by definition, the low profit ones. They were only offered because competition between suppliers meant that it was just about worth reaching out to get those marginally profitable customers. But if you can only offer four tariffs then it’s not worth slicing and dicing the market finely enough to reach those people: thus they will have to pay more. For of course, every supplier can only have four tariffs and it will be that low profit one that they all drop.

It’s not just that we’ve got the fools trying to play God in hte markets, it’s that they don’t seem to know anything about markets while they do so.

16 comments on “Regulate prices at your peril!

  1. You capitalist wankers annoy me.

    Ed’s going to freeze electricity prices like he said he would, and there’s nothing you can do about it.

    Then he’s going to freeze the price of food, cars, clothes, skateboards, designer shades, Werther’s Originals, midget gems, tellies, flights, iPods, Nivea hand cream, One Direction downloads and wellies.

    And then you’ll be sorry.

  2. Sometimes democracy trumps markets. If you piss off enough of your customers enough of the time, eventually they respond with legislation against you.

  3. Don’t worry, the experts know what they are doing. It might look idiotic to you, but that is because you are not clever enough to understand.

  4. Interested, how about we kick him out of politics? He’s the best reason to vote another party that the other parties have.

  5. Martin, I disagree and think Miliband will win the next election in a landslide, and I’ve had a significant bet on 40+ seats with a close associate who is high up in Central Office.

    Without Scottish independence, I don’t think we will ever have a majority Tory government again (in England).

    No great loss, as there’s not much to choose between them and Labour. No-one represents free market capitalist ideas, if anyone ever did. Maybe it’s not possible in a democracy.

    Labour have consistently won the PR battle, so that utterly mad ideas like price controls are – combined with the boundaries – going to sweep them to power.

    When it proves not to work, they will win the PR battle again by blaming wicked right-wing businessmen.

    I am fortunate in that I am able to leave – where I’ll go, as this bollocks is sweeping the world, is another question.

  6. Utilities cannot operate as true capitalist companies, especially as we’re meant to be using less of the stuff!
    They can’t stimulate the market to increase overall consumption, (other than natural growth in demand). They can only increase their market share. So we have the big six (and the rest of the small operators) spending vast amounts of money trying to nick customers from the other companies.
    It’s a barmy situation and any tinkering is just a waste of time.
    My suggestion is to take the industry back by forming a non for profit energy supplier, at arms length to government.
    It would be run as a service by people who believe in public service.
    Too quaint a suggestion?

  7. @dan ash…

    But government wouldn’t be able to keep its sticky little fingers off it for very long… And we all know just how wonderful the assorted nationalised “service” industries were – or do if we’re old enough to remember!

  8. “My suggestion is to take the industry back by forming a non for profit energy supplier, at arms length to government.
    It would be run as a service by people who believe in public service.
    Too quaint a suggestion?”

    One can only assume you are too young to have experienced what it was like when we had utilities run as ‘public services’ before, or that you are so old your memory is failing you.

    What do you think would be the outcome the first time a decision had to be made where the two options were a) implement policy X, which would reduce prices for consumers, at the expense of the employees (in job cuts, no pay rises etc), or b) do nothing, and see consumers continue to pay higher prices that necessary, while maintaining the benefits to employees? Do you think that there might just be the same reaction we have seen in State owned and run monopoly organisations ever since their introduction – namely that the ‘public service’ would be run for the benefit of those employed in it, not the customers? Indeed most State owned organisations usually choose option c) Give all the employees massive pay and benefit rises, and never sack one of them, and hike prices to the consumer (who can’t go anywhere else) to pay for it.

  9. I’m old enough to remember the utilities when they were publicly owned. Was it a utopia? No of course not. But I can also see the current set up. And it’s rotten to the core. You say that in the old days they were run for the benefit of the employees. I say they’re run now for the benefit of a small elite, the owners of the big six who manipulate the whole process to keep prices high and add some tax avoidance in for good measure.
    I say again the utilities can’t operate in the true sense of capitalism. It’s a sham.
    I can’t see how a not for profit utility would be worse than what we have now.

  10. ‘Staywarm’ tariff, how wonderfully Orwellian – the Germans do have a sense of humour after all.

  11. What we have now delivers power at a roughly average cost for Europe and puts a lot of money into a lot of pensions. How would you replace the lost pension income?

  12. Sometimes democracy trumps markets. If you piss off enough of your customers enough of the time, eventually they respond with legislation against you.

    Ian B talked about the electric telegraph the other day – it’s actually an interesting story and I think there is a parallel here. Apparently the public got pissed off with complicated tariffs and perceived the prices to be high, so there was fertile ground for the campaign to put the telegraph under state control.

    I think at one time SSE had 60 tariffs.

  13. “I think at one time SSE had 60 tariffs.”

    How many of those would have been open to new customers at any given time? One suspects that there would have only been a fairly small number of choices to a new customer, but that existing customers may have had tariffs that had been withdrawn and altered in some way. Thus it could indeed be true to say ‘SSE has 60 different tariffs’ but no-one was ever made to choose between 60 different sets of prices and terms.

  14. You seem to be forgetting the pre-payment meter tariff.. which effectively means that many of the poorest pay the highest tariff for their energy

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