Keep the lights on…but fairly
Ed Miliband’s recent pledge to fix energy prices for householders and businesses for 20 months if Labour wins power has fired the starting gun for a cost of living election in 2015 and kicked off a debate around the energy sector, and how it might better serve customers and the wider community. Miliband’s vision is to fix prices to fix the problem. Paul Pugh explains that there are several avenues to be explored and no quick fix.
Ed Miliband’s pledge that Labour would freeze gas and electricity bills for every home and business in the UK for 20 months if it wins the 2015 election has undoubtedly reignited the debate on the stewardship of the energy sector.
This is intended to allow a window of opportunity in which Ofgem, the current energy watchdog, would be abolished and replaced with a new regulatory regime that ensures customers get a “fair deal”, although Ofgem may argue that one of its stated primary aims is already “to protect the interests of Britain’s gas and electricity consumers”.
The energy companies have something we all need to heat our homes and cook our meals, and all want, to power the technologies that we use for leisure. Prices are seen to be rising more quickly than average income and, therefore, becoming a larger percentage of a household budget. In low income households the issue is more acute. At the same time, headline profits are rising at energy companies, a reported £3.74bn in 2012 amongst the ‘Big Six’ energy companies.
The view of the general public reflected in media outlets across the political spectrum is that we are being ‘ripped off. Whether current energy prices are actually good value for money is largely irrelevant. Among consumers, businesses, and voters there is a growing perception that they are not, so some form of change is inevitable.
Avenues for change
If change is required there are a number of options. Mr Miliband has provided one vision, which would need to weave through various energy specific and competition regulations. It would also need to provide a more definitive vision of the end game – what will the energy sector look like following these reforms?
Another option would be to encourage an environment, which allows more entrants to the market, in particular not-for-dividend organisations that invest any profit made back into the business. Such organisations could be alternatively funded and, in theory, immune from takeover by larger private sector rivals.
But, opening the market to new entrants would be a longer term project and may be on the ‘too difficult’ list as it would require extremely large start up costs and be subject to a range of challenges. There is, however, precedent for this in the UK water industry with Glas Cymru (Welsh Water), a £600m plus turnover social enterprise servicing 3 million customers.
A third alternative is for the energy companies to work with Government and other stakeholders to develop a deeper and more visible shared value approach. This would involve pursuing policies which help the competiveness of a company but also simultaneously advance the needs of consumers and wider community. Such an approach could, in time, and within regulation, bring energy prices to a more broadly affordable level.
To a degree such initiatives are already being considered by some energy companies, such as sophisticated community benefit schemes aligned to wind and solar projects, however, this would need to be addressed at every level of the business.
This is a very important issue, however, the even bigger picture is that the exact same arguments and solutions could apply to all of our ‘needs’ including food, water, fuel. There will be many other parts of business community looking on with interest.