17 August 2017
What A Gas!
A little light on the price rises
by J.R. Thomas
Never hold a naked flame near an unregulated supply of gas. Somewhat amazingly, that’s exactly what British Gas plc did two weeks ago.
Luckily, the only casualty turned out to be the corporate image of British Gas. The naked flame was BG’s announcement that it was about to increase electricity prices by 12.5%. (For confused readers we should explain that British Gas is a major supplier of electricity to both retail and corporate customers; it does also supply gas, in case you are wondering.) The unregulated supply of gas was not the stuff which BG supplies but the media/social media/web hot air which is ever eager for a cause for an exciting explosion.
British Gas is the successor to the former state monopoly of that name, now owned by the giant publicly quoted company Centrica, which owns a number of energy generation and supply businesses. It may be good at running an energy business – it is well regarded amongst its peers for being an old fashioned business that just gets on with the job – but it certainly lacks some PR skills. It made its announcement, out of the blue on 31st July, at a time when the media is hungry for some good headline news, and headlines BG certainly got. The London Evening Standard (editor, one G Osborne recently of the Exchequer) lambasted the company for corporate greed and for grinding the faces of the poor, something into which the editor has particular insights. Next morning nearly all the press led with the greed of BG and its outrageous behaviour; and in the strange world of the web the issue was spreading faster than…er…a gas explosion. Thousands of bloggers and Twitterers, most of whom would be hard put to define the difference between electricity and gas, denounced BG’s behaviour, most calling for the government to do something, preferably to Centrica’s extreme disadvantage and pain.
The government’s position on doing something in any shape or form has, like most other government positions, been messed up by the election. Mrs May, you might recall, had said during her truly remarkable campaign that the government would introduce caps and controls on energy prices to domestic users. Like much else that she might have intended with her sweeping majority, that is now parked in a pending tray at the back of a cupboard in No 10. But the on and offline media community has not forgotten Mrs May’s rash remarks and urged the government to deliver.
Meanwhile, at Centrica’s headquarters in Windsor… Well, we don’t know what was happening, other than that the press department pointed out what had been said in the original announcement, that the main reason for the rise was huge increases in costs of the government green levies to pay for Britain’s switch to entirely sustainable sources of electricity. Needless to say, that explanation went almost entirely disregarded, certainly by the government, the Guardian quoting that “Ministers expressed concern about the rise, which they said should not be blamed on government policy…” and further saying that “ issues of fairness for customers” were being looked at. Which ministers these were and how fairness might be achieved was not set out.
Now, the Shaw Sheet is not here to defend capitalism, especially when capitalists seem incapable of defending themselves. But if there is a competition in business schools for how to mishandle communications, this must be up for winner of the year. Firstly, British Gas had not increased its prices since November 2013, almost four years ago. Since then, its energy costs – creating the power, getting it to customers, generally running its business – have gone up 16%, a figure pretty constant across the industry. So what has actually happened is that the cost to the consumer has gone down 3.5%, compared with the costs of the product. That’s a result to be proud of indeed. Not that you would know it from the company whose chief executive, the slightly unfortunately named Iain Conn, said “We haven’t taken the decision lightly, we know it affects 3.1 million customers”. Secondly, nobody needs to pay British Gas for their electricity (or indeed their gas) for long. There are six major suppliers in the market and a number of small ones, and whilst their tariffs are a little complicated, they are all much more simple than, say, trying to operate your Sky TV. And all those competitors will help you change your supplier. So, if you don’t like BG, move elsewhere.
But thirdly, and crucially for the long term future of private power supplies, the reason that BG needs to put its prices up is beyond its control and can be laid firmly at another door. That door is in Whitehall; No 1 Victoria Street, SW1, to be precise. That is where the Department of Business, Energy, and Industrial Strategy hangs its hat, folds its scarf, lays down its mittens, shrugs off its lined overcoat, and removes its galoshes. It was the Ministry of Energy and Climate Change until last month when, significantly or not, it dropped the latter and added all the other bits. Whatever it wishes to be called, the Ministry is the reason that the electricity industry has seen its costs go up so quickly and enormously.
After seemingly lying prone in the electronic gutter whilst every Twitterer gave the BG body a good kick, Centrica finally got up on Thursday last and went round to see the Financial Times. The Financial Times may be the newspaper of business and finance, but it is noted for a rigorous approach to facts. And it finally said what BG should have saying, not just last week but months, if not years, ago. Britain has the 11th cheapest electricity prices in Europe, so consumers are in a very good place. That is although costs of transmission and meterage have gone up 10% in three years. The costs of production have gone down 21% in that time (falling costs of carbon based fuel mainly). And guess what; the costs of government “mandates and policy” has doubled; up from £81 per customer in 2014 to £165 in the current year – a sixth of an average household bill. BG’s profit margin is 7%, hardly riches unlimited. Whoever those ministers were that thought the 16% price rise was not to be blamed on government policy need to be sent on a basic accountancy course; maybe an honesty course too.
For green, or sustainable, energy has to be paid for. It is expensive and with falling prices for carbon based energy, it is comparatively getting more expensive. (It is not that green either – the carbon costs of all that cement and steel, all that digging and transportation, the miles of wires from the wild windy places leaking energy every mile up to the consumers door, all are very non-sustainable.) That all has to be paid for. We all use energy, green or otherwise, some of us more than others, and we, consumers, must pay for it. It could be financed out of general taxation as Mr Conn suggested in his interview with the Financial Times, but that just means low energy old ladies (energy using, we mean, old ladies can generate remarkable amounts of energy) would be paying for the high energy using families with every electronic gadget running at full blast, along with the heating.
The government wants those who use it to pay for it; but they want to pretend it was not politicians who made it more expensive. But it was and is; the energy companies should be saying so, very clearly, every time a consumer gets a bill. That way we could see what a good job they are doing – and when we look at a massive wind turbine spoiling a view, a fleet of them sailing just offshore, buildings covered in glistening black solar panels, dams in the Welsh mountains – then we will know it is us who are paying for that, and know the true cost of what we are doing.
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