Please, make up your mind dearie

It came as no surprise that British Gas, the latest of the Big Six energy companies to hike its prices, found itself the recipient of a furious backlash this week. There’s plenty to be angry about: one in four households now regularly choose between heating and eating; 7,200 people died last year because they were unable to heat their homes; while energy minister Ed Davey’s solution to fuel poverty is to advise people to “wear a jumper”.

Fuel poverty is mobilising people to seek alternatives to the corporate control of energy (the Big Six control 99% of our domestic gas and electricity supply). Following the latest round of price hikes, the announcement of mega-profits and eye-watering chief executive pay, the companies’ claims that they have no obligation to keep the lights on is fertile ground for civil disobedience.

Following that Teenage Trot boilerplate the suggestion is that we should use higher priced power from renewables. Thus increasing fuel poverty and the number of elderly who die each winter.

And yes, we do know that renewables and insulation and the whole greenie shebang are more expensive: that’s why we’ve got a problem in the first place. If it was all cheaper then we wouldn’t need the schemes and the subsidies and the laws and the regulations. That we do have them is proof perfect of the contention that the plan is indeed more expensive.

So, the actual demand is that we must make things cheaper by making them more expensive. At which point we need to tell this fool to make up her mind.

Assuming she has one.

26 comments on “Please, make up your mind dearie

  1. Maybe she has got a plan. Step 1 is to exploit public anger to bring about the Revolution. Step 2 is to announce the closure of all carbon rich fuel sources plus, of course, nuclear and a massive roll out of renewables. Step 3 is to build special homes for the elderly so that they can huddle together for warmth.

    No doubt Step 17 will be when the granddaughter of our Eternal Leader announces that construction has re-started on an older nuclear power station that promises to bring power to keep the lights on in Chelsea for at least six hours a day. The masses take to the streets with tears in their eyes to thank our Glorious Leadership for their care, concern and compassion while condemning the Yankee Imperialists for their on-going secret programme of sabotage that is causing all the shortages.

  2. I don’t quite get the point about the Big Six. There are 6 companies, not 1 or 2. I expect in most areas of the economy, fewer than 6 companies provide the bulk of services. Just as a random example, I’d guess that 99% of car hires (by value) across Europe are through 6 companies or fewer. This is called competition, but for some reason when it comes to power, it’s called a cartel.

  3. >>Ewa Jasiewicz is one of the No Dash for Gas campaigners currently occupying a chimney at West Burton gas power station.

    Best place for her I should think

  4. I’d guess that 99% of car hires (by value) across Europe are through 6 companies or fewer. This is called competition, but for some reason when it comes to power, it’s called a cartel.

    I would dispute your figure of 99% simply because the vast number of small independent hirers. However, the energy companies are described as a cartel not because of their number but because of their observable actions.

    I quote; “Cartels usually occur in an oligopolistic industry, where the number of sellers is small (usually because barriers to entry are high) and the products being traded are usually homogeneous. Cartel members may agree on such matters as price fixing.”

    Whether or not the energy companies form an actual cartel, it’s certainly how they appear to some observers.

  5. My uncle would appear to be my aunt, if he had tits.

    Anyway, I don’t get it – I thought ‘wear a jumper’ was good advice?

  6. Seems they’re a ‘cartel’ because they’re all charging similar prices in an industry where the input & the constraints are very similar. And if prices were significantly different, they’d be an article about excessive profits by individual companies.

  7. Suggestion as to why it’s called a “cartel” rather than “competition” – the idea in most markets is that it’s not competition that matters, so much as contestability, that is, how easily new entrants can come into the market. With car hires it may well be 99%+ by value going to six firms or less, but it’s not so very hard to compete with them so they can’t really abuse that position. With energy, where competing requires construction of a great big power plant, the whole constestability thing doesn’t work so well.

  8. If energy is a business only for the big boys how does that explain all the suppliers of smallish diesel generators who are now doing very well? They are doing so well because of BluLabour’s attempts to ensure that their (and ZaNuLab’s) green nonsense doesn’t come home to roost in the form of rolling wintertime blackouts(Christmas by Candlelight anybody?. Sounds like a TV movie).

    The big 6 are the only kind of cartel that lasts–one created by and up the arse of the state. It is perfectly possible to factory manufacture small but powerful nuclear reactors that would send energy bills in this country (and around the world once exported) tumbling. Green bullshit and statist tyranny are the cause of our problems here, as in so many other areas.

  9. And not as if its hard to change suppliers, I’ve done it several times.
    Just wait until we get gas and electricity cuts, politicians will help the media blame the energy companies regardless. New nuclear power stations, last I looked, was a political decision put off by more than one government….

  10. On the “cartel or no cartel” point, the relevant thing is that economically it doesn’t matter in the slightest.

    The optimum strategy for firms in an industry with very high barriers to entry and common input prices (“charge effectively the same as everyone else, match competitor price rises immediately, and ensure that profits are just slightly too low for it to be worth a new entrant’s while to set up”) is identical. The only additional benefit you’d get from collusion would be better advance planning of when to raise prices, which isn’t worth the legal risk…

    It is perfectly possible to factory manufacture small but powerful nuclear reactors that would send energy bills in this country (and around the world once exported) tumbling.

    In principle, yes. In practice, not yet. There is a great deal of research going on worldwide into small modular nuclear reactors, but we’re many years away from them existing as a viable commercial product.

    The two things about nuclear engineering that are important to bear in mind here are *it’s really difficult* and *if you fuck it up then very bad things can happen*.

  11. Let’s burn greenies! There seems to be an endless supply of them and it would keep the old folks warm without tapping into any ancient carbon plus skip out the big bad energy companies, giving the greens a nice warm feeling..

  12. On the “cartel or no cartel” point, the relevant thing is that economically it doesn’t matter in the slightest.

    On the “murder or no murder” point, the relevant thing is that medically it doesn’t matter in the slightest.

    Tim adds: That’s not quite what John B means. The fact is, from the outside you cannot tell whether concerted price movements are a result of a cartel and collusion of an entirely free market. Either market structure will give you the same price movements, same pattern of them. So you cannot look at price movements and conclude one way or the other.

    You need to go and look at returns on capital to work it out. High returns on capital would indicate a cartel (not prove, but indicate) and “normal” ones a free market in operation. But as I say, the price movements will be the same in either case.

  13. I know what he meant, but if you are going to address a problem – and the original article suggests there was one – then you need to start by looking at the current situation and how we got there. The second part is crucial to solving the problem, and this isn’t going to happen if it it is dismissed as irrelevant. If no cartel exists, then people should stop referring to one otherwise we’re going to be prescribing all the wrong solutions.

  14. Also, having participated in meetings between large energy companies trying to cooperate on things, the idea that 6 could all agree on something is laughable.

  15. Tim Newman – “Also, having participated in meetings between large energy companies trying to cooperate on things, the idea that 6 could all agree on something is laughable.”

    But they got caught fixing the spot market didn’t they? Or at least there is a clear and unexplained pattern of taking large power stations off-line at certain times which drives the spot price of energy through the roof.

  16. Three businessmen in jail and thrown in the same dank cell.
    They, as is often the case in jokes, proceed to compare notes.

    Businessman 3: what are you in for?
    Businessman 1: I set my prices high. I’ve been done for gouging
    Business 2: I set my prices low. I’ve been done for trying to keep competitors out
    Business 3 [sighs]: I set my prices the same as everyone else: I’ve been done for running a price fixing cartel.

  17. The Co-op increased their prices, proudly announcing that they had absorbed part of the rise in wholesale prices so their price rise was only 4.5% compared to the evil British Gas which raised prices by 9.2%. The resultant price for Co-op dual fuel customers was over £1300 compared to £1297 for British Gas customers after its latest price rise. So before these price rise the wonderful Co-op was charging about 6% more than the evil British Gas. Doesn’t sound much like a cartel to me.

  18. Can we please check the denominator as well as the numerator? If government ‘encourages’ energy companies to ‘invest’ in green solutions, then the companies will require a return on that capital – otherwise it is simply theft from the shareholders. That return shows up as higher profits, but we need to account for the capital spent. As the share price of the likes of RWE implies, these are not excessive, indeed the return on capital employed at RWE has collapsed from 18% to around 5% over the last 5 years and the share price is down over 50%. Some cartel!

  19. SMFS: When service providers like this form cartels, the result is usually to divvy up regions between them, giving each an effective monopoly in their allocated area. IIRC a German and a French company were clobbered for this a few years back, and it’s what happens in Russian towns when telecoms companies supposedly compete. It’s not a case of agreeing prices, which is why I think John B’s comment is bollocks.

  20. Is there something abnormal about wearing warm clothes? If so, there’s a lot of abnormal folks around.

    Ljh: but what if they are old folks who are greenies?

  21. Tim N: there are two reasons why this wouldn’t be the case in the UK.

    1) British Gas was privatised as a national entity, so became competitive in every region as soon as dual-fuel was a thing;
    2) in the pre-NETA days when wholesale power prices were incredibly cheap and the concept that hedging retail liabilities with generation assets was for cissies, every man and his dog had a nationwide retail energy company (with attendant shady door-to-door business tactics previously only seen in the double-glazing industry). It’s only after the early-2000s crunch that the current “let’s offset liabilities with generation or gas assets” ethos became established.

    As a result, the companies that are now EON UK, RWE UK, EDF UK, Iberdrola UK, S&SE & Centrica don’t have defined geographic bases in the way utilities almost everywhere else do, because the churn (as much through M&A as customer churn) in the decade between LEB privatisation and consolidation into the Big Six was so immense.

  22. Tim N: there are two reasons why this wouldn’t be the case in the UK.

    Quite. So the situation doesn’t even have the outward appearance of a cartel, does it?

  23. It doesn’t have the appearance of the cartels seen in other utilities markets. But it does have the appearance of the [cartels/perfect competition] seen in markets for other high-barrier-to-entry commodity industries; the textbook one being cement.

  24. The text-book cartel being cement – which textbook? The one that shows there are ways of competing other than on price?
    The UK cement industry, when UK-owned was highly competitive despite having a price fixed at £X/ton plus cost of transport from the nearest cement works (not the works supplying the cement, the nearest one). Rugby Cement competed on service and Sir Halford Reddish was able to report record sales and profits every year for forty years until he retired by which time Rugby had doubled market share.

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