By Brian Parkin
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Hot air on energy prices

This article is over 11 years, 5 months old
Since April 2008 working class living standards in Britain have fallen by an average 13.2 percent. Over the same period domestic energy prices have risen by over 38 percent, while profits of the major UK energy companies have risen to levels only exceeded by the banks.
Issue 375

The official classification of fuel poverty is a household that has to spend at least 10 percent of its income on energy bills. Over 5.5 million households are already in fuel poverty, over half of them either having to make special provisions for winter quarter bill payments or living in fear of disconnection.

Yet in May, when the current Energy Bill was launched, the government cynically calculated that the effect of its new legislation would immediately push a further 400,000 households into fuel poverty through its effect on fuel prices.

Energy companies routinely justify their price rises by pointing to rising costs in the wholesale market where they buy their energy to sell on to “retail” customers.
But in early November it was reported that allegations of energy market rigging had been made to the Financial Services Authority (FSA) after a former trader had spotted “irregularities” at the close of trading on the wholesale gas market on 28 September.

These relate to the practice of end of day price fixing that suspiciously happened at 4.55pm every trading day, just before the market closed. This could only have been possible through collusion between price reporters and traders who were fixing the wholesale price downwards so as to set a higher trading margin for the following morning.

This would then allow those big wholesale gas customers to then buy cheap and sell high into the retail market of mainly separately metered customers – the majority of which are domestic households.

The link between the market rigging and rising costs to the consumers is down to the fact that the six big energy companies in the UK account for some 90 percent of the wholesale gas market. The “big six” can enjoy an abuse of cartel power in order to get what they want. And as these companies are also big in the power generation market in which they operate gas-fired power stations, they can deliver a gas and electricity price “double whammy”.

The other side of this gigantic fiddle is the price tariff system which penalises those forced by hardship to pay more per therm of energy used than that paid by the better off. Those Citizens Advice describes as being forced to “self-ration” their energy are in fact buying the most expensive fuel on the system. And furthermore, they can’t escape.

Yet in the face of a scandal that for many people this winter could be a matter of life and death, the Labour opposition says nothing other than to make vague comments about the need for more entrants to the market in order to ensure “real competition” and responsible regulation.

By any standards this shows a fundamental inability to understand even the most basic of energy economics while demonstrating a complete lack of nerve when it comes to standing up to big business.

According to the latest report from Ofgem, the tame industry regulator, by 2016 Britain will have a generating capacity margin of only 4 percent above expected demand.

Without further, and massive, investment, the energy future will be one of increasingly frequent winter power cuts. And by 2015 the National Grid Company estimates that Britain will be importing around 75 percent of its gas requirement.

To make things even gloomier, market analyst Merrill Lynch reckons that around 40 percent of gas imports by then will need to be in the form of Liquified Natural Gas, 40 percent more expensive than conventional pipeline gas.

By any standards this is an energy crisis of massive and strategic standards and one that the Financial Services Authority, so entrusted by the present government and by Labour, is neither capable nor willing to sort out. And for the millions facing the prospect of deeper fuel poverty, the energy crisis is already here.

So while the energy companies rake in ever more fabulous profits and while traders fiddle and Labour dithers, the poor (and increasingly not so poor) shiver. And in this energy microcosm of a wider and insane casino economy, the working class will be quarterly billed for the price of capitalism’s crisis.

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