October 18, 2013

Transparent energy bills, please

The government has no answer to Ed Miliband's proposition on energy bills. They are as slow off the mark on the cost of energy as they were when Labour christened and attacked a "bedroom tax". Ministers are reduced (like the hapless Ed Davey in the Commons) to plaintive suggestions that consumers shop around around more. But the oligopoly of suppliers are raising prices pretty much in line with each other. Ministers also point to deals that offer to fix prices for 12 months. But the price rise round is annual anyway.

The government's last intervention into energy pricing backfired for our household. David Cameron said all consumers should be put onto suppliers' lowest tariff. Our supplier then abolished their preferential "internet tariff". Mr Cameron's intervention has thus cost us money. Imagine how grateful we are.

The proposed price freeze is populist quackery. It couldn't hold if wholesale fuel prices shot up. Labour initially sought to defend the proposal by claiming the energy suppliers were making excessive overall profits, a charge they couldn't sustain. Labour's new claim is that they are making excessive profits in their distribution arms, and they suggest unbundling them from retail provision to consumers. The government should be looking at this, to exploit it or knock it on the head.

Most of the suppliers' costs are outside their control, so kneejerk calls for greater competition are beside the point.

The daft Westminster consensus policy of "decarbonisation" will add more and more to our fuel bills, as Allister Heath explains:
Taking an average dual energy bill, policy and regulation costs will increase from 8 per cent (£75) of the total bill in 2007 to 22 per cent (or £329) by 2020, a massive 338 per cent rise. The cost of updating the network infrastructure to allow it to function with lower carbon and more distributed generation technologies will add an extra £114 per bill by 2020 – a 124 per cent increase on 2007. The cost of rolling out of smart meters will boost supplier costs by about £24.
Politicians of right and left conspire to hide the fact that their agreed policy is going to make energy bills higher. They all know this and they all say nothing.

Allister Heath adds that the price of supporting low carbon technologies will increase from £12 in 2007 to £82 on each and every bill by 2020. "The cost of carbon will jump by £45; spending incurred for improving energy efficiency will add £88 to the average bill by 2020 (up from £17 in 2007)." As he drily remarks:
Appeasing middle class consciences comes at great cost.
UKIP's Diane James was right to say on Question Time that the government should flout EU rules and reopen coal-fired power stations. After all, if Germany can use coal, why can't we?

Energy suppliers are also accused of being quick to raise their prices when wholesale prices go up, but slow to bring retail prices down when wholesale prices fall. The government should require more transparency in bills.

First, consumers should have the option to receive monthly bills showing the wholesale price applied for that month. Commercial customers already have this facility, and according to Nick Grealy it is popular in the US. Then it will be easy to compare suppliers' wholesale strike prices month by month.

Second, suppliers should be required to show separately on bills the various extra charges listed above. Of course this won't happen, because governments would hate it. But consumers need to know these numbers.

There is no single stroke of the pen that can "solve" the energy bill crisis. But without transparent billing, the problem will only ever be fudged. Sadly, a fudge suits both the suppliers and the politicians.

The government are lucky that the issue has flared up a year and a half before the next election. That gives them a year and a half to spike Ed Miliband's guns. But they show no sign of it yet. Indeed, their fumbling responses so far suggest that they have yet to get above the lumbering speed we saw in the response on the "bedroom tax".


A K Haart said...

"The proposed price freeze is populist quackery."

It is, but with energy we appear to trapped in a market run by quacks and charlatans.

Weekend Yachtsman said...

On the subject of transparency, I would like to see petrol priced nett.

In other words something like this:

1 Litre of petrol: 30p
Fuel duty: 90p
VAT on 90p: 22.5p

Total per litre £1.33

Or whatever the real numbers are.

Would make people think, I reckon.

Johnm said...

1 litre.
Fuel duty = 57.95p
Fuel cost pre-tax = 47.8p
VAT on Fuel cost and VAT = 21.15
Retailer margin and delivery = 5p

Johnm said...

That should be VAT on fuel cost + fuel duty = 21.15p