Energy Fix Needs Simplicity and Not-for-Profit Distribution

The UK Government today launched its grand plan to help people with their energy bills.  Let me summarise.  There’ll be a change to the Warm Homes Discount (worth on average £12) and a reduction in the Energy Company Obligation (worth around £35).  The average bill will reduce by about £50, but that may be entirely consumed by price rises (based on rises in wholesale power and/or transmission costs) so there’s a good chance bills will rise anyway.

Are you still with me?

Probably not.  What about if I say “PRICE FREEZE” really loudly.  Oh, right that got your attention.  Now, how about your vote?

The manoeuvrings on energy in the past couple of weeks have been all about politics and very little about policy.

As the shouting match continues, for me there are two interesting points to come out of this episode:

i) If you have set up a system of qwerky, indirect taxes that have been sneaked onto energy bills (or anywhere else) to fund wonkish (but worthy) policy ideas, don’t be surprised that you don’t get much credit when you cut them. bill_1787240c

Taxation of energy is a cacophony of acronyms ECO, RO, CFP, WHD, the list goes on.  Would it be better (and more honest) to replace these with one ‘Green & Social Energy Tax’ or ‘Carbon & Insulation Levy’ that the bill-payer can relate to? This would make it very clear what the government can and cannot control in the energy bill and the specific policies could be set out in more detail for the enthusiast.

Maybe it is a question of form rather than substance, but when people are struggling to understand an important issue like energy bills, a note of simplification from government would be welcomed.

ii)  Focus on the political aspects of the bill is tinkering (£1 a week reduction is hardly cause for celebration).  Looking at the big ticket items in the bill would yield greater dividends.

For me, the key focus should be wires and pipes.

David Cameron has hinted that a look at the way in which distribution and transmission charges are regulated is overdue.    This seems to me to be the aspect that is most ripe for intervention.    In a competitive market, the process of generating power and selling it are both intrinsically commercial, and therefore suited to private companies.  Distribution on the other hand is a pure monopoly.

Having our wires and pipes owned by private companies creates a layer of commercial profit-taking that is completely unnecessary from a consumer’s perspective.  Bringing this aspect back into a company limited by guarantee, a ‘not-for-dividend’ entity within government control could be the most positive change for the electricity consumer, but it is so un-exciting that no-one wants to talk about it.

Looking at the farce of the train companies being split from the track owners tells us that simplistic atomisation of an industry will not necessarily improve efficiency or lower prices.  So it has proven with energy.  However, at least Network Rail is not run to pay dividends, is mandated to invest profits and is answerable to government.  Our energy systems would be more transparent and cheaper if the wires and pipes were owned by a non-commercial entity in the mould of Network Rail.

From there, we are only one step away from not-for-profit utilities.  Welsh Water  is owned by Glas Cymru, a single purpose companshutterstock_nonprofity run solely to benefit its customers.  It has shown it can be done in the water sector.  Should we be looking at this model more closely for power and gas as well as wires?  I’m not there yet, but I’m sure that the discussion of the future of our energy markets would be much enhanced if we looked at corporate models that were somewhere between pure private capital and nationalisation.

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