The 14 Words

Wednesday, 4 December 2013

Should the Big Six Energy firms be nationalised?

It's an unthinkable idea. It bucks the Thatcherite consensus. The markets would hate it. And yet ...

When Ofgem head Andrew Wright identified a “deep mistrust of anything the energy companies do or say” last week, the chief executive of Britain’s gas and electricity regulator wasn’t exaggerating.

After four years of inflation-busting price hikes that have increased their average profit per household more than ten-fold, the popularity of the “big six” appears to have sunk to an all-time low. So much so, that 68 per cent of the population wants to see the big energy companies renationalised, according to a poll by YouGov last month. Returning the energy sector to state ownership may be a comforting thought after those bill hikes increased the average big six profit per household from £8 in 2009 to £105 now, leaving ever-larger numbers of people struggling – and in millions of cases failing – to heat their homes.

To kick off the debate, [Jewish spokeswoman] energy expert Ann Robinson, of the uSwitch price comparison website, is unequivocal. Nationalising the big six’s power stations and their retail divisions – which sell it on to households and businesses – is a terrible idea. 
“Renationalisation would stifle innovation, remove any incentives to improve customer service and efficiency – I don’t think it is the answer. Fiddling around with detailed regulation won’t work,” she says.
Stephen Fitzpatrick, head of the independent gas and electricity supplier, Ovo Energy, agrees. He may have told Parliament last month that 
“a lot of the energy companies are charging the maximum price they feel they can get away with” but he has told The Independent he doesn’t think nationalisation will fix the problem.
“I don’t think the government is likely to be any better at running the energy sector than private companies. If you asked people how they would feel about nationalisation if it meant higher bills and more red tape, then I don’t think they would be so keen,” Mr Fitzpatrick says.
These are traditional criticisms against state ownership, that the government is much less effective at promoting innovation than a private company operating in a competitive market (though some question how competitive the market is at the moment, more on which later) and that it would generally run the business less efficiently, resulting in even higher prices. Unsurprisingly, that’s also what Energy UK, the industry association, believes.
“A healthy and profitable private energy sector is essential if the nation is to ensure security of supply in the long run. There is a massive amount of investment in infrastructure required, around £110bn in the next seven years, and the only way that is going to be funded is if the industry is able to make a profit and attract investors,” a spokesperson tells me.
But what about the case for nationalisation? 
“The government could prevent any excess profits, while borrowing money to invest in the system could become cheaper,” says Dr Robert Gross, director of the Centre of Energy and Technology at Imperial College London.
The government would be able to borrow money more cheaply than the big six because it has a much stronger credit rating and because its monopoly status would make it more financially secure and therefore more likely to repay its debts. And it would not have to pay a large portion of its profits out to shareholders in the form of dividends.

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