Observer Calls for Pubic Ownership in Power Sector

(c) Dave Simonds Observer

(c) Dave Simonds Observer

Last week’s by-election result has thrown the cat amongst the political pigeons, and the spirit of revolution has made it through to the Observer’s business pages.  Citing the refusal of Centrica to use its enormous profits to build more gas-fired power stations in the short term,  today’s Business Leader asks the surprising rhetorical: “Should not public money go into….a publicly owned utility?”.

I had thought that agitating for nationalisation was something the Guardian and Observer gave up when Ed Miliband was in short trousers and Ken Livingstone shaved his tache.  This call for a state-owned power company therefore comes like a bolt from the blue (or perhaps that should be the red).

The justifications for the call seem to be two fold:  (i) spending on supplying energy would be more useful than some other aspects of government spending (in particular, defence) and (ii) the French do it (through EDF) and they are allowed to play in our markets.

Comparing different government budgets and pointing the finger at European competitors make it a crude critique. But both points have some superficial appeal.  If large scale rail projects like Crossrail and HS2 need a certain amount of direct public money then energy has a strong case for similar.   The government has also shown that it can get comfortable with nationalised banks when the level of crisis is sufficiently acute to force it to step in, and it is true that EDF has a powerful place in the UK energy market while being underwritten by the Elysees Palace.

However, like in banking, the issue on greater state intervention in the energy sector is more a question of crisis management, rather than corporate governance (as suggested by the Observer).   Government ownership has not been an effective check on executive pay at the banks or as a stimulus to force banks to lend.  Control over a national utility’s gluttonous board or ineffective delivery might be equally weak.

My view is that the current government approach of subsidising low-carbon energy generation through a £7bn subsidy package in the Energy Bill is a better course.   The problem is, subsidy does not guarantee the capacity will be built.  Whether the idea of a nationalised utility should be seen as a genuine possibility is not about Centrica’s profits, more about how seriously we take the claims by Ofgem last week that the energy system is facing a crisis.

We are entitled to a clear view from DECC on how serious the crisis is, and how the government is proposing to manage supply and demand through the crisis.  We need to know if there is a genuine risk that the lights will go out.  If the answer is yes, stronger policy action is required immediately.

And if the policy response does turn out to be a national utility, let’s hope it’ll have Tony Benn on the board!

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