Three ways we could end the big six ‘Energy Fix’


1:45 pm - February 13th 2012

by Gavin Hayes    


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contribution by Caroline Lucas and Gavin Hayes

This week has been the coldest so far this winter. But whilst in recent days our papers have been filled with stories of fun in the snow, in the weeks ahead they’re more likely to be filled with chilling stories of yet more excessive profiteering by Britain’s big six energy companies, coupled with big pay awards for their top executives.

In the first six months of 2011 alone the big six energy companies made around £3.5BN in profits.

At the same time, it’s now estimated that over 5 million households in the UK are facing fuel poverty.

At the same time energy companies profit margins appear to go up and up unabated, leading to OFGEM warning last October that profits on dual fuel deals had risen from £15 per household to a staggering £125 – a rise of 733%.

Clearly something is going very wrong and it’s time we did something about it. That’s why this week over 100 leading figures have launched a new cross-party campaign coalition for affordable energy called End the Big Six Energy Fix – this has been backed and endorsed by The Independent.

To tackle the behaviour of predatory energy companies we are proposing three simple and sensible solutions.

First, we are calling on the Government to respond to the excessive profiteering of the big six energy suppliers by imposing a similar levy to the one they have imposed on North Sea oil companies and the big banks.

Over time such a levy could raise billions, revenues that could be ring-fenced and used to ensure that every home is insulated and highly energy efficient – starting with the homes of the fuel poor. This would form part of a Green New Deal and help to create thousands of new skilled jobs in the process.

Second, to prevent energy companies from passing the cost of any levy on to customers, we want the Government to give the regulator OFGEM the power to cap prices. This could be linked to the wholesale price to make energy prices fairer – we could perhaps call this an ‘energy price escalator’. Indeed interestingly this week we’ve heard that the telecoms regulator OFCOM is looking to cap the cost of landline phone rental – so why not allow OFGEM to cap the price of energy too?

Third, we want the Government to launch an independent public inquiry into the big six energy companies. In much the same way that we have had an Independent Commission on Banking led by Vickers and now an investigation into the media led by Levenson, so we now urgently need a similar public inquiry on the energy industry.

We then need to devise appropriate reforms that ensure we have a market and an industry that serves people and planet before profit.

Finally, we need to kick-start a national debate on energy that not only focuses on the issue of price and competition, but more fundamentally on the kind of energy industry we want for the future, recognising that energy provision should be viewed not merely as a market commodity, but as a crucial public service on which we all rely.

—-
Caroline Lucas MP is leader of the Green Party; Gavin Hayes is General Secretary of Compass. More at: www.endthebigsixenergyfix.org.uk

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About the author
This is a guest post. Gavin Hayes is general secretary of the pressure group Compass.
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Reader comments


Right so you want a whole lot of regulation and enquiries with no doubt exactly the outcomes you favour, politicians and bureaucrats making commercial decisions in other words, bound to work I’m sure. Have you not twigged yet that attempts to regulate prices and predict future demand through central planning doesn’t work ?

do they really mean price caps in absolute terms? this is an industry with volatile costs, perhaps you could cap profit margins (i.e. prices relative to costs) but price caps per se are a barmy idea.

“in the weeks ahead they’re more likely to be filled with chilling stories of yet more excessive profiteering”

Hmm, what’s excessive?

“In the first six months of 2011 alone the big six energy companies made around £3.5BN in profits.”

Yes, that’s a lot of money. Now, how much capital is imployed to generate such profits?

Anyone?

The privatization of the major utilities was the biggest of the cons perpetrated on the people by thatcher. First they stole something that already belonged to the people, flogged it off on the cheap using tax payers money to advertise the great swindle.

Any savings that the tax payer may have made in so called private efficiencies have more than been off set by the price gouging, and endless tariffs and cold calling designed to confuse and con the public. These are not luxury items but necessitates. Heat, light, water.

Just another example of why I laugh in the face of so called patriotic tories. They care not a jot for the everyday person. It is also a warning regards the the NHS. Once these things are sold off it is impossible to renationalise them in the moden world. Armies of high powered lawyers and shareholder rights groups will demand their pound of flesh. If ever there was a truism of the old saying that private poperty is theft, it is what has happend to the utilites.

So, nothing on vertical integration, the stringent licensing requirements for entry into the supply market, or the barriers to accessing the wholesale market at all, then. I’m pretty sure the Big Six will continue to be the Big Six following your proposals.

The thing to note here is that two of the given reasons for privitisation: consumer choice and competition are a sham.

The energy companies will do everything in their power to render rational comparison of their services and the process of changing suppliers as difficult as possible.

This is because energy supply, with the exception of certain niche considerations is wholly price-driven. Unlike when buying a toaster, where capacity, colour etc etc are factors, users don’t care about anythimng but price (again excepting that some people might prefer eco-friendly supplier and be prepared to pay a bit more for that).

Let us suppose that someone were to set up a service to compare suppliers on-line and allow you to change supplier at the click of a button. What would happen? The cheapest supplier would become a near-monopoly, and the others would be out of business.

This would, for the companies, be and advantage if they could guarantee that they were the sole survivor. But they can’t. So, the prefer a guaranted share of the market to a possible monopoly. Consequently, they make comparison and changing as difficult as possible, and also undermine competition by co-ordinating price changes. This does not mean forming cartels, but simply monitoring each other. At every proce change, some-one moves first and the others follow.

One possible solution would be to form a state company to buy energy and sell, as a monopoly, to consumers. This would have the effect of removing the information gap between consumers and suppliers. Consumers could set up a profile (e.g. eco-friendly enegry if not more than 10% more expensive) and the state company would negotiate the correct “mix”. With a remit of both cheaper energy and maintaining diversity, it could “punish” high proces and profits.

@ Tim W

Now, how much capital is imployed to generate such profits?

Barely relevant.

What we have here is clearly a cartel operating with a state regulator.

Surely not the kind of market of which you approve?

Anyway, as that is what we’ve got, the second idea of having retail prices fixed by referencing them to wholesale prices is actually rather a good one.

Barely relevant.

But that[‘s the most relevant thing if you want to work out whether the profits are excessive.

If they’re using £10 billion in capital to make £7 billion a year then that really could be said to be excessive, a 70% return on capital. But if they’re using £100 billion then it’s a very low amount. Almost certainly below their cost of capital in fact.

1
The old ‘central planning’ chestnut again, as if companies like British Gas or Powergen (massive corporations) don’t centrally plan well in advance, but rely on day to day market pointers. Nah

I see the market is providing consumer choice and competition again. Oh wait,no it isn’t. Just a few of the usual types making money as easy as shooting fish in a barrel and probably awarding themselves large bonuses for doing so while we continue to pay through the nose to line their pockets.

Choice and competition? what a joke. I’d suggest a mass campaign of non-payment to nudge those in control of these things into providing the energy at a sensible cost, removing the blatant,scandalous profiteering, but that would be immature.

11. Tax Obesity, Not Enterprise

steveb @ 9:

Surely you can see that ‘centrally planned by the government’ is not the same as ‘centrally planned within each of corporations x, y and z’? I mean, you can see the equivocation in your argument, can’t you?

Just cap prices. Re nationalise energy. It’s simple.

Come on, if we didn’t live in this insane Thatcherite era we’d see the obvious answer: just nationalise the lot of them. I can’t see how any Labour supporter could take a different position.

@ rentergirl

How does capping prices and re-nationalising bring energy prices down ? You still have to do all the investing, buying, etc. Why would a state directed energy sector be any better at that than a private one, where is your actual evidence ? Probably you just intend to fund the whole thing out of taxation. The romantic notion that raw resources and energy are somehow different from any other commodity is a left over from the “socialism + electricity” Soviet nonsense, it’s not surprising that it still has such an appeal to the unthinking left.

(14) Evidence? This is a blog not an academic conference. The evidence is the mess we’re in now. What else do you want? People are being ripped off by out o control energy companies.

16. Frances_coppola

If we really want to bring household bills down, we could start by getting rid of the ECO – you know, the levy charged on all household bills to pay for “energy efficiency improvements” – and cancelling the Green Deal. That should reduce household bills by about £50 just for starters.

17. So Much For Subtlety

MarkAustin

The thing to note here is that two of the given reasons for privitisation: consumer choice and competition are a sham.

The energy companies will do everything in their power to render rational comparison of their services and the process of changing suppliers as difficult as possible.

And thus consumer choice and competition is not a sham. Because if it was, they would not bother would they? They will only try to hide any real comparison if there is a real comparison to make, people do make it, and it will cost them money when people move to another provider.

This is because energy supply, with the exception of certain niche considerations is wholly price-driven.

I am sorry, but you’re claiming there is no comparison in product because the product is all the same and doesn’t come in nice colours? Most people would say on the contrary, it is precisely because it is wholly-price driven that there is an incredibly strong degree of consumer choice.

Let us suppose that someone were to set up a service to compare suppliers on-line and allow you to change supplier at the click of a button. What would happen? The cheapest supplier would become a near-monopoly, and the others would be out of business.

Or …. perhaps, just maybe, the other power companies would be forced to lower their prices too and offer a competitive product?

This would, for the companies, be and advantage if they could guarantee that they were the sole survivor. But they can’t. So, the prefer a guaranted share of the market to a possible monopoly.

Do you have any evidence of this illegal collusion? You don’t do you? What is more cartel arrangements like this are incredibly hard to enforce. There is such an advantage to one company breaking ranks. How is it even possible that the Big Six – including two German companies, one Scottish company, one British company, a French company and a Spanish company – could meet and collude in this manner without anyone noticing? It is not as if they all went to school with each other is it?

Besides, the idea that competition ends in monopoly is childish.

Consequently, they make comparison and changing as difficult as possible, and also undermine competition by co-ordinating price changes. This does not mean forming cartels, but simply monitoring each other. At every proce change, some-one moves first and the others follow.

They will only make comparison and change difficult if people, in fact, have the power to move. If they were colluding they would not give a damn what the public thought or wanted and so would not bother to hide prices. Why would they? No cartel? Just watching what everyone else does? That is called competition. You may have heard of it. Of course if someone lowers prices, the others will be forced to follow. How else do you expect the real world to operate? You have not described collusion but a free market.

One possible solution would be to form a state company to buy energy and sell, as a monopoly, to consumers. This would have the effect of removing the information gap between consumers and suppliers.

What makes you think that a state-owned monopoly has the slightest interest in clear information being given to the public? What is it about public ownership that means they would have any more interest in letting the people know than a private company would? Naive is the kindest word I can think of right now.

With a remit of both cheaper energy and maintaining diversity, it could “punish” high proces and profits.

As we all know public ownership does not bring cheaper energy. And its only remit would be getting the Prime Minister of the day re-elected.

steveb

The old ‘central planning’ chestnut again, as if companies like British Gas or Powergen (massive corporations) don’t centrally plan well in advance, but rely on day to day market pointers. Nah

They don’t centrally plan because, as you say, they are companies. Several of them. They plan for their own businesses. With the long term interests of their business in mind. They do not plan centrally with the government’s short term interests in mind. No central planning you see. They also plan within a market frame work. They listen to the market, that is, their customers and the real world, they do not fight it.

rentergirl

Just cap prices. Re nationalise energy. It’s simple.

Sometimes simple does mean stupid. What makes you think that a nationalised company would cap prices in the long term? Or to put it another way, when the government owns an asset, which do you think they will care about more – their chances of being re-elected, the value of the asset they own or what you pay?

More regulation will do precisely nothing. There is a way to end the big 6 domination. Get rid of the ridiculous government regulation that plays right into the hands of the big energy companies. Liberalise the market to reduce barriers to entry and then use strong competition law to regulate the actions of the already established firms. In 10 years time we won’t have 6 companies we will have 20-30.

@rentergirl
Are you really so obtuse that you don’t think it’s necessary to offer evidence to back your assertions just because you are commenting on a blog ?

I think it is important to consider how and why we got here. The privatisation of nationalised and state utilities came about almost by accident. One will find very little about extensive privatisation in the Conservatives 1979 manifesto. The ‘ Ryrie rules ‘ were Treasury public accounting rules introduced to stop Labour governments shoveling public money into bankrupt nationalised industries and calling it investment. In the early 1980s, BT needed huge investment in digital switching equipment and devised a scheme to raise capital called Buzby bonds.http://www.samuelbrittan.co.uk/spee21_p.html

The Treasury were unimpressed because they thought that the Treasury would still bear the risks. This inability to disengage government from critical infrastructure gets to the heart of the matter with regards to the utilities today. So selling 51% of the shares in BT was the solution to getting them investment off the state balance sheet. Privatisation snowballed from there. It is also important to remember that the type of public sales that were conducted happened that way because City institutions were uninterested in buying large stakes. Fees for handling the sales, good. We will pass on buying large stakes, but thanks for the offer. The general feeling was that the British utilities were utter basket cases who would struggle to make any money. What absolutely no one realised was the sheer scale of the gigantic overmanning in the utilities. Tens of thousands were basically employed doing absolutely bugger all. Doing nothing other than reducing their headcount in a hard-budget constrained environment increased their profitability. When they could reduce their workforces by half and produce the same output, it is not difficult to conclude that as state-owned utilities that they were overmanned.

Without waffling on how does this relate to the current privatised utilities. The truth is that they are not truly private plc completely disengaged from government. The assets are privately owned but no company controlling critical infrastructure can ever expect to be disengaged from government of any ideology. British Airways was privatised and if they closed down flight routes the government are not going to interfere because they operate in a competitive market place. Thomas Cook another former nationalised company are not going to get any interference when they close shops. However, no government are going to stand back and watch the owners of London sewage system close the sewage system down. They are not going to stand back and watch the gas or electricity network being closed down. Therefore, ownership and control are different things when it comes to critical infrastructure. The fact that one could say why would they want to do that is irrelevant. It is just a demonstration that some companies are different no matter the ownership structure. Only the truly barking believe that utilities could operate without strong regulation of their activities.

The pattern with the energy utilities appears to have been to allow them to make good margins just before privatisation. In fact, it was in the final years of state-ownership that the blatant price gouging occurred. Give them a few years of light regulation after privatisation, while they fire their unproductive and they become highly profitable. After that period hit them with tight regulation to drive profitability down to near the cost of capital. That ultimately has costs for the consumer. It is disingenuous to rant on about total profits. Margins are what count for the sane. The revelation that energy companies sell more energy in cold weather is up there with the revelation that ice cream and barbecue sellers sell more in warm weather. What we need to know is are the margins for the whole year unreasonable? If the margins are too high what are the barriers to entry for new players? Who is erecting the barriers to entry?

The ultimate cost for the consumer for the regulatory burden is because it drives the cost of capital up for the company. Mr Market worked out that these companies are not truly private. The regulatory authorities retain ultimate control because they can always change the rules. E.U. directives, domestic regulators and governments pandering to populism are what helps to drive the cost of energy up. Mr Market knows all this so charges the companies more for the cost of capital for future investment. Therefore, the companies are forced to fund future investment from retained profits. One has to generate higher profits in the first place, in order to retain profits to fund the level of investment that the authorities are requiring. The regulators and government are behind it all but they are quite happy for energy companies to take a kicking rather than them.

Producing energy and a transmission network is going to have a cost no matter who owns the assets. There is no such thing as subsidised energy. Someone somewhere will be paying for the energy. Asking for subsidised energy is just the same as saying something should be free for you, but someone else should pay your share. Insert suitable tearjerker for reasons why. Energy is our biggest challenge of the future. Ultimately I can’t see any way that it is simply not going to cost us more.

@ Tim W

Barely relevant.

But that‘s the most relevant thing if you want to work out whether the profits are excessive.

But economic theory says that monopolies and cartels make excess profits.

Do you deny that we have a cartel?

And worse, the cartel is sustained by state regulation so we have what is euphemistically described as “crony capitalism” where there is a symbiotic relationship between government and the energy companies.

Which benefits everyone except the consumer. No?

@19
Obtuse, lol reaches for the dictionary but can’t be arsed

You been watching too much TV.

Nationalise and be damned screw the shareholders their all tax dodgers anyway.

@Paul
“Obtuse, lol reaches for the dictionary but can’t be arsed.”

If you had been arsed you might have learnt the difference between “their” and “they’re” as well.

“But economic theory says that monopolies and cartels make excess profits.”

Not quite. It says that the *can* make excess profits.

And then goes further. One of the ways that we can identify whether there is a cartel operating is if we can see excess profits.

So, back to our first question. Is £3.5 billion for 6 months excess profits given the capital that is employed?

25. Steve in Stubbs

Strange how the solutions put forward by politicians always seem to involve taking more in tax for the government to distribute to their pet friends.

The clear solution is a mix of price capping and the removal of the hundreds if not thousands of various tarriffs.

One simple price per unit of gas or electricity, with totally transparent billing, removal of the insidious green supplementary charges which support totally uneconomic schemes, and most importantly –

A regulator who actually regulates rather than kow-tows to the energy companies.

So, back to our first question. Is £3.5 billion for 6 months excess profits given the capital that is employed?

This is a difficult question to answer, because many of these are multi-national companies etc but my estimate is that the capital employed is between £50-60m.

On that figure are the profits excessive? Who can say?

However profit is not the only indication that a cartel is in operation in this industry. The alacrity with which price rises are implemented and the delay in passing on falls in wholesale energy prices is a clear indicator.

The obfuscation on pricing would appear to indicate some level of competition between the players, however I believe this is merely a smokescreen.

The customer apparently sources the best tariff according to their consumption but two years later, by the time the contract is ending, it is, by then, one of the most expensive on the market. So the customer changes to a cheaper deal every two years yet prices continually increase.

How does that happen?

I’m afraid if it looks like a duck and quacks like a duck………….

@16 Frances Coppola

You’re usually more sane than this.

Our energy, like much infrastructure, has suffered from poor investment for decades as governments of all stripes have failed to make decisions. Whether they be green or black we have insufficient capacity for projected demand so capital will have to come from somewhere, either the consumer or the taxpayer. Given concerns about climate change and demand for fossil fuels it also makes sense to invest in more effiecient use of energy and alternative forms of generation.

This does not change the points in the OP, the Big Six need regulating to protect the consumer and help to improve our energy efficiency and environmental impact.

“This is a difficult question to answer, because many of these are multi-national companies etc but my estimate is that the capital employed is between £50-60m. ”

Billion perhaps. I don’t know what their cost of capital is but I do know that Barclay’s, making 6.5% on their capital, are making less profit than their cost of capital. Sooo, taking that as a guide, the cost of £60 billion of capital is at least £4 billion.

Very rough figures indeed but it’s not exactly an indication that £7 billion a year in profits on £60 billion of capital is excessive profit.

“However profit is not the only indication that a cartel is in operation in this industry. The alacrity with which price rises are implemented and the delay in passing on falls in wholesale energy prices is a clear indicator.”

No, it isn’t. One of the nice little oddities is that price movements in a perfect oligopoly and a perfect free market will be indistinguishable.

” Whether they be green or black we have insufficient capacity for projected demand so capital will have to come from somewhere, either the consumer or the taxpayer. Given concerns about climate change and demand for fossil fuels it also makes sense to invest in more effiecient use of energy and alternative forms of generation.

This does not change the points in the OP, the Big Six need regulating to protect the consumer and help to improve our energy efficiency and environmental impact.”

This doesn’t make sense. You want more capital in the system but you also want to cut the profits that that capital can make?

What?

You attract capital by *increasing* the possible profits, not reducing them.

No, it isn’t. One of the nice little oddities is that price movements in a perfect oligopoly and a perfect free market will be indistinguishable.

We know we have an oligopoly, the question is whether we have a cartel. Are you suggesting energy pricing seems similar to what would happen in a perfect free market?

I respect your opinion, but it still looks like a duck to me……

30. Frances_coppola

@27 Cherub

If we need to invest in green technologies and energy efficiency improvements, then we should invest in them – directly. Not by a hidden charge on energy bills that is not even disclosed clearly to customers and that penalises those who have PAID to implement energy efficiencies such as insulation.

We know we have an oligopoly

No, we don’t. Oligopoly is not the same as “few firms in the market”. It’s the same as “firms in the market having pricing power”.

And we can’t work out whether they have pricing power just by looking at the prices. For a free market and a successful oligopoly will show the same sorts of price movements.

If there is an oligopoly, then I’m all for regulation, break up, whatever. If there’s collusion (ie, a cartel) then fine ’em 10% of turnover as EU laws insist we should.

But I’d like the cartel/oligopoly thing to be proven, not assumed, before we do that.

@30 Francis

I’d say the issue was openness. Energy tariffs can absurdly complex and I’ve seen the “hidden cost” of green intiatives given as anything between £12pa and the £50pa you give. (I probably pay the higher end as I use a small company that specialises in renewables, matching the tariffs of the Big 6 and using the surplus to pay for new capacity. I know this because they clearly tell me so.)

It’s cheaper for everyone if new green infrastructure is paid for out of general taxation but there should be more to it. Those who have already invested in better insulation and triple glazing are the well-off or took advantage of grants that are no longer available. People in rented accommodation or low pay do not have the option so unless their landlord is an extravagant green they are going to use more of their income to pay for wasted energy. We need to take measures to prevent a growing divide between haves and have-nots for energy efficiency as in other areas.

No, we don’t. Oligopoly is not the same as “few firms in the market”.

There are various types of oligopoly. You have pointed out that competition between a small number of companies in a market can be fierce and, when that happens, we have close to a perfect market.

It could be argued that this kind of oligopoly exists with UK supermarkets-relentlessly chasing each other’s customers. (Their suppliers might be more likely to complain about the oligopolistic effect!!!).

However supermarkets can easily compete in areas other than price- quality, convenience of location etc. However the energy companies are pretty much stuck with price (with maybe an element of customer service) as they cannot reasonably argue that their kilowatt hour is superior to that of their rivals.

I am not suggesting that there is necessarily overt collusion between them to achieve the cartel (though that has happened in the past) but there has undoubtedly been a culture of price leadership, with the same effect.

I’d like the cartel/oligopoly thing to be proven, not assumed

How do you suggest that could be done?

“How do you suggest that could be done?”

A cartel or oligopoly in action will result in excess profits for the members. That’s the point of them after all.

So, we should examine the *amount* of profits being made and compare them with the capital being used to make them. We then compare this ratio, that return on capital, with the general return on capital in the economy. If their profits are lower than this general profit rate then we have a pretty good , although not perfect, indication that they are not making excess profits.

And if they ain’t making excess profits then they’re not a cartel……or if they are they’re an incompetent one.

35. Frances_coppola

32 Cherub

I totally disagree. Recently-built affordable housing is generally energy efficient. The people who live in that housing pay the same levy as others living in older, less energy-efficient houses. They are hardly “the rich” and cannot possibly benefit from the levy.

Nor do I agree with your assertion that people who have paid to implement energy efficiencies are either rich or have benefited from grants. My parents, who are very far from rich, were among the earliest adopters of solar power, which they paid for themselves because they felt they should – being a bit green, you know. It gives them free hot water but they still have to pay for their central heating. Why should people whose commitment to green objectives leads them to use some of their meagre savings to further those objectives be penalised by an indiscriminate levy on the energy they use to top up their solar power?

If we wish to support energy efficiency we should do so directly and transparently, not by a largely concealed levy applied indiscriminately to energy bills.

36. Frances_coppola

32 Cherub

I should add, that my parents also paid for insulation, and double glazing was built into the price of their house. As triple glazing is with recent builds, of course. Really this levy penalises people in newer houses to benefit those in older ones. It has nothing to do with ability to pay, really, does it?

@35, 36 Francis

I suppose we’re coming at this from different angles. I think it’s likely that the Big 6 are operating in an unfair way and they need better regulation and I think we need to improve our energy efficiency and diversify towards renewables. You take a more backward-looking view that those who were ahead on the curve on this should not be disadvantaged when we make the necessary changes.

That sounds a bit like the sunk cost fallacy.

They might argue for some sort of credit for their efforts, which I might support, but I want such things to be normal so I want to find a way of achieving it for everyone, not just a lifestyle choice for hippies.

38. Frances_coppola

37 Cherub

No, you are completely missing the point. It is not right that people who have paid the higher price for newer houses that are more energy-efficient should have to pay through their energy bills so that people on similar incomes who have bought older houses can be subsidised to bring their houses up to the same level of energy efficiency. Nor is it right that ordinary people living in newer houses should pay to subsidise landlords to bring older properties up to scratch. Nor is it right that people in older houses who HAVE brought their houses up to modern energy efficient standards should have to pay again to subsidise those who have not. Nor is it right that all of this should be done by means of a levy on energy bills that most people don’t even know about. The whole arrangement stinks, frankly. Get rid of it and support energy efficiency openly from general taxation. And let’s have an honest debate about who should really be subsidised to update their houses, and who should simply pay for it themselves.

“Lifestyle choice for hippies”. How dare you use such pejorative terms about elderly people who have worked hard and saved all their lives. And you would charge those people again to pay for the same energy efficiency improvements for those who can’t be bothered to upgrade their houses or would rather spend the money on a new car? If those energy efficiency improvements were paid for from general taxation, people like my parents wouldn’t be paying for them – because they aren’t rich enough to pay income tax.

You don’t know what “sunk cost” is, do you? It’s the term used in accounting when you write off a worthless investment. “Sunk cost” is the money you have spent on it that you can’t recover. What you are suggesting is that people who have successfully invested in green technologies in their houses should also pay for others to have them too. That’s not “sunk cost”, it’s a rip-off.

@38 Francis

Sorry you feel my reference to hippes is pejorative. I meant it as reference to environmentalism as a lifestyle choice.

I suggested that it might be worth considering grants to reward those who have already taken measures (above the energy bills they will have saved and the FITs newer PV panels receive).

I did not refer to sunk cost quite correctly as I was referring to the sort of fallacious thinking you are using. Simply because someone else has spent money on a good thing that we would all benefit from should not prevent us all from similar investments. I think it’s right that government has required energy companies to pay for energy efficiency and diversification schemes and that we and future generations will hopefully benefit from them.

I answered your first point suggesting that what is missing is clarity in energy tariffs from the Big 6. You seem to want to avoid these points, suggesting to me that your issue is more about such measures of any sort rather than the specific issue referred to.

40. Frances_coppola

39 Cherub

Would you please address my point about the regressive nature of the energy levy – since it is charged to people who would not suffer this cost if it were funded from general taxation? That you haven’t done so suggests you don’t think this matters.

I am not suggesting “preventing” other people from having the same investments. I’m suggesting that if government wishes everyone to benefit from these then it should be funded from general taxation rather than by means of a levy on energy bills. What is “fallacious” about that?

You evidently don’t understand tax incidence, either. If an energy company is required by government to pay for socially desirable energy efficiency improvements, that is in effect a tax upon it. That tax is passed on to its customers in the form of higher tariffs. Therefore it is not the energy companies that pay for these improvements, as you suggest. It is their customers – including the poorest ones, who as I’m sure you know actually pay the highest costs for fuel. It is a regressive and unfair means of upgrading the nation’s housing stock to meet energy efficiency objectives.

Clarification of energy tariffs from the Big 6, while desirable, wouldn’t address the points I have made.

Surely easiest way to increase consumer power the sector is to limit the number of different tarriffs available and outlaw contracts that lock you into a provider for more than 3 months?
It’s not as if new pipes have to be installed when you switch, it’s all done electronically. Giving consumers the ability to switch more or less at will will boost competion and push down prices.


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  1. Liberal Conspiracy

    Three ways we could end the big six 'Energy Fix' http://t.co/t63sev3K

  2. Jason Brickley

    Three ways we could end the big six ‘Energy Fix’ http://t.co/NRrf9IpF

  3. Patron Press - #P2

    #UK : Three ways we could end the big six ‘Energy Fix ’ http://t.co/49p1Jgua

  4. leftlinks

    Liberal Conspiracy – Three ways we could end the big six ‘Energy Fix’ http://t.co/j57WXTCl

  5. Jason Kitcat

    Three ways we could end the big six 'Energy Fix' http://t.co/t63sev3K

  6. Tom Coady

    Three ways we could end the big six 'Energy Fix' http://t.co/t63sev3K





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