The real cost of energy privatisation - a look at the UK


As temperatures drop and household energy bills soar again this autumn, the PR battle to privatise our energy infrastructure is just heating up. The IMF/EU claim that competition, the favourite euphemism for privatisation, will lower costs for consumers. The Government claims, as usual, that it has no choice but to do what its overlords instruct. So now seems like a good time to observe how that privatisation has been working out for our nearest neighbours in the UK.

Its privatised energy system is dominated by six big companies. They're 'regulated' by Ofgem, an independent (i.e. democratically unaccountable) quango just like our own Commission for Energy Regulation (CER). Predictably enough, the system isn't exactly working out for people who actually need to heat and power their homes. One of the most popular threads on Mumsnet, a huge UK parenting forum, is all about sharing ideas for how to get by with less heat this winter. Political pressure has forced David Cameron to stage a meeting with utility company bosses at which they were subjected to some serious finger wagging. The outcome? The energy companies have been forced to destroy several rainforests by writing to their customers advising them to shop around. Dramatic stuff.

Meanwhile, the regulator, Ofgem, continues its toothless threats to force the utility companies to dismantle the complex system of about 400 different energy tariffs that it says stifles competition by confusing customers. Of course, those confused customers could ring up to find out which is the cheapest tariff. They might even eventually manage to get a human on the other end of the phone. That may not get them much more clarity though. Consumer surveys have found that they'll be offered a more expensive tariff about a third of the time. Are the staff just as confused as the customer? Or could it be that they're just doing their job? Following the script they've been given - by management? Ofgem is no doubt shocked that a capitalist oligarchy could fleece its customers in such a way.

Anyone who's travelled by train in the UK recently might notice a similar pattern. Anyone who's tried to compare mortgages or private health insurance plans might be feeling a little déjà vu by now. Of course, according to classic capitalist economic theory, consumers are assumed to have perfect information. It's one of those convenient assumptions you can make when you're a pseudo science. In the real world, whether it's oil companies colluding in cartels or utility company oligarchs dominating the market in slightly more subtle ways, the customer knows all they need to know - they're being shafted, again.

Companies have other ways of profiteering from privatisation too. Ofgem has also been shocked and horrified to learn that the utilities have been fiddling their accounts to seem less profitable in order to justify raising prices. Accountants are being paid vast sums to investigate and a report is being prepared. The utility companies are reportedly quaking in their boots.

But aren't public and semi state energy providers inefficient and wasteful? The media has certainly been obligingly wheeling out stories about gold-plated office chairs and pampered staff in the ESB and Bord Gais. Sounds somehow familiar.... Banks anyone? Art collections in the foyer? Corporate hospitality boxes at the races? Bonuses, strip club outings and 5 star restaurants? Here's how the chief executives of the UK's companies have been paid in 2011 while leaving customers in the cold:

  • RWE npower, run by chief executive Volker Beckers, gave its highest paid director a 15pc pay rise to £1m.
  • EDF Energy, led by chief executive Vincent de Rivaz, gave its highest paid employee a 30pc rise to £1.3m.
  • Scottish Power allowed the pay of Nick Horler, who left during the year, to rise 63pc to £1.3m, largely as the result of a significant pay-off.
  • Phil Bentley, managing director of British Gas, took home compensation worth £4m last year - double the previous year - after redeeming shares worth £2.7m.
  • Poor old Ian Marchant of Scottish and Southern's pay was flat at £1.2m and he redeemed fewer shares than the previous year.
  • E.ON UK, run by chief executive Paul Golby, saw the package of its highest paid director fall from £1.5m to £1.2m. He must be crying into his champagne.

Many people will react to unaffordable bills as the Mumsnetters have - privately, individually. They'll cut back and make do with hot water bottles and extra layers and invoke the spirit of the Blitz, or the '70's. Irish people too will no doubt treat it as a kind of opportunity for nostalgia about how cold Irish homes were long ago and how it never did anyone any harm. It did of course - the isolated, elderly and sick were frequently helped on their way to the grave by damp and cold homes. Today, hypothermia kills 30,000 in the UK each year. Of course then, as now, it was the poorest and weakest who died. They're edited out of the picture. But donning the rose-tinted spectacles of nostalgia, or offering up your misery to doing your bit for climate change, does nothing but allow those same people to die again. And for what? To avoid the worse discomfort of challenging the powers that be?

Of course our energy companies are unaccountable. Our State is fundamentally unaccountable so how would our semi-states be much better? The solution isn't to hand over infrastructure that we depend on for a decent life to profiteers. The long term solution is to make our energy providers democratically accountable. That means managed day to day by those who actually do the work, democratically, with a mandate from citizens to produce affordable energy at as little cost as possible to our climate. It means delegates democratically elected by citizens involved in management - delegates that can be recalled by the public if they fail to fulfil their mandate.

In the short term, it's true that individuals have little control over the austerity being imposed on us. Fortunately, we are not just individuals. By reaching out to our neighbours, colleagues and friends who are in the same boat, we can get organised to change the things that we can. The household tax is the most straightforward place to start. It's something that can be changed if enough people participate in non payment and organise others to do so too. It’s also an opportunity for progressive movements, like Occupy, to help bring about concrete change for the better in the lives of most people. It's easy to feel powerless in front of the juggernaut of disaster capitalism, but if we fail to exercise what power we do have, we'll keep finding ourselves with ever less.