Why the Brits Have Shot Themselves in the Foot (Again)
UK energy companies certainly have an ability to step in it – all the way up to the knees. What makes it the more remarkable is the callous way in which they move from one crisis to the next.
All of which has obliged a hasty revision in the strategy for my meetings here.
The latest imbroglio involves a very unwelcome (and significant) spike in energy prices as the nation moves into the winter season.
The UK market is controlled by six dominant providers of electricity and heat: British Gas, EDF, E.ON, npower, SSE, and Scottish Power. And when one of them raises its rates, the rest are certain to follow.
That march is now underway. British Gas announced on Friday an average 9.2% increase, effective November 23. That followed a recent decision by SSE to hike rates an average of 8.2% beginning on November 15.
And right on cue, npower yesterday became the third to hike prices, announcing an average increase of 11.1% to begin December 1.
This is rapidly creating a political maelstrom…
Outcry from the Archbishop of Canterbury
These moves have since occasioned a strong condemnation from Justin Welby.
Welby is the Archbishop of Canterbury, the top prelate in the Church of England (the church is officially headed up by the queen). What makes the strong criticism all the more interesting is Welby’s profession before he took a divinity degree.
The Archbishop used to be an oil man.
From 1978 through 1989, Welby served in various continental and UK executive capacities with French major Elf Aquitaine, now part of an even larger Total SA (NYSE: TOT), before moving on to London’s Enterprise Oil.
He pulled no punches in his comments.
“The impact on people, particularly on low incomes, is going to be really severe in this, and the companies have to justify fully what they are doing,” Welby said.
“I do understand when people feel that this is inexplicable, and I can understand people being angry about it, because having spent years on a low income as a clergyman I know what it is like when your household budget is blown apart by a significant extra fuel bill and your anxiety levels become very high. That is the reality of it.”
The Archbishop urged firms to be “conscious of their social obligations,” saying they had to “behave with generosity and not merely to maximize opportunity.”
“They have control because they sell something everyone has to buy. We have no choice about buying it,” he said. “With that amount of power comes huge responsibility to serve society.”
“It is not like some other sectors of business where people can walk away from you if they don’t want to buy your product and you are entitled to seek to maximize your profit. The social license to operate of the energy companies is something they have to take very, very seriously indeed.”
Welby added he was concerned that fuel poverty was “a very severe issue… because real incomes are flat or declining and the cost of energy has gone up.” He added “It ties in with the food banks and the debt. They are all part of the reality of life for many people today.”
Just don’t expect any “I could have had a V8” moments from the power companies anytime soon.
Dress in Layers and Wear More Jumpers?
Blaming the high costs of transport and delivery, along with some rather appreciable regional variations (especially in bringing power to some of the poorest sections of the country), the companies are also hitting people with yet another blow.
Citing a confusing system of rates and allowances, a new initiative to “streamline” bills has been introduced.
Unfortunately, with the exception of the 500,000 or so most destitute, this means relied upon discounts will also vanish. So even the poorest spared this reform will find the remaining allowance will cover less than half of the announced increases.
But even that is not the most callous part of all this.
In response to a wave of protests, British Gas executives have countered by suggesting their actions may not result in higher costs. “After all,” one actually told a journalist in Friday, “the consumer could always use less energy.”
If that were not enough, a government spokesman actually suggested that end users could counter the price increases by wearing additional layers of clothing!
Making the matter even worse politically, this sage compounded the embarrassment by even making an apparel recommendation. “You could wear more jumpers [heavy sweaters].”
Ed Miliband, the head of the opposition Labour Party, has pledged to freeze energy prices through 2017 (the next election is expected in 2015). Current Conservative PM David Cameron has labeled the move a “socialist con.” But it had been resonating with the electorate even before the newest rate increases.
It also doesn’t help that, at least according to one Sunday newspaper, Sir Roger Carr sits on the Prime Minister’s Business Advisory Group. Carr chairs Centrica…and Centrica owns British Gas.
Into the Gathering Storm
This is rapidly becoming a political maelstrom.
But I do have an approach. Not only is it a domestic solution to the rising cost of energy, it also has the advantage of providing some very attractive opportunities for U.S. companies (and our investment interests in them).
The recommendations will be unveiled during my major briefing later today, followed by a round of media appearances.
I have already floated some of the particulars in meetings with government and regulatory officials. But I must be careful in walking through this self-inflicted British political mine field.
A good example surfaced in one of my sessions yesterday. Only somewhat tongue-in-cheek was the following introduction made. “I am pleased to hand the podium over to that well-known energy expert Dr. Kent Moors. He is over from the Colonies to show us the error of our ways.”
Yes, a certain amount of caution is in order here. As usual, Marina offers some wise counsel. “Don’t be a bull in the china shop,” she advised me. “Remember, it is their family heirlooms you are breaking.”
Yet sometimes the dishes must fly anyway. In Thursday’s issue, I will lay out what I have urged London to do…and how we intend to make some nice profit off of it.