Why the Brits Have Shot Themselves in the Foot (Again)

Why the Brits Have Shot Themselves in the Foot (Again)

by | published October 22nd, 2013

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.

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  1. danny wolfson
    October 22nd, 2013 at 11:13 | #1

    as a brit + not a right wing one I ask what is so wrong with suggesting people should wrap up warmly to ameliorate the effect of higher energy bills? something I for one will be doing.

  2. October 22nd, 2013 at 11:40 | #2

    I read that carbon content will badly hurt big oil companies like ExxonMobil. Can you write a column on this?

    What do you think of Statoil as an investment?

  3. Robert in Canada
    October 22nd, 2013 at 11:53 | #3

    Environmentalists are the main problem regarding energy in the UK and other developed countries. (However, they like energy produced by countries that beat women and execute gays.)

    So energy prices are going up. It’s because there is more demand while enviro-nuts block efforts to produce more energy.

    The UK (and most of Europe) has huge amounts of tight gas that can be produced with safe proven methods such as fracking. But fracking is not allowed because of the lies and propaganda campaign against it.

  4. Warren
    October 22nd, 2013 at 16:38 | #4

    Why not talk about some facts?
    What are current energy prices doing?gobally
    Where is energy usage going up or down ?
    Is the high cost of alternative energy (wind farms etc ) effecting costs. ?
    Is the shutting of coal mines effecting energy costs?
    What excuses/reasons do the energy companies have for the price increases?
    Where is the reporting on above and similar items so we can have a reasoned study of the price increases. Not just a rant.
    Thank you

  5. yngso
    October 22nd, 2013 at 18:19 | #5

    In the foot – that´s putting it mildly! This is old-fashioned, short sighted capitalism. It´s not even worth wasting a capital C on. When I first learned about the first industrial revolution I was shocked at the suffering and poverty of the factory workers, “necessary” for progress to happen. The same is happening now in China and elsewhere. We haven´t learned very much.
    Many people have to choose between eating and heating in the winter. Govts have a duty to regulate. When everything has to be spent on survival it hurts the general economy.
    PM Cameron isn´t much better than pres. Hollande of France. The socialists – no capital S here either – certainly need talking to.

  6. Roger Smallman
    October 22nd, 2013 at 18:20 | #6

    @danny wolfson
    As a Brit as well can say the problem starts when it’s a choice between heating, lighting or eating and this isn’t just for the ‘unemployed’ its for a large number of working people on lower wages. But the main ‘target’ will be the disabled, sick and elderly who will die because of these rises.

  7. Fred
    October 23rd, 2013 at 02:25 | #7

    Oh dear, here we go again. Part of the problem is indeed the stupid policies surrounding environmental concerns that will result in us brits spending years wringing our hands while we discuss whether we should or shouldn’t get the tight gas out of the ground.

    However, there is so much political froth here. The fact that the average electricity bill is going to go up by around £100.00 per annum is not going to cause mass starvation for the unemployed or the sick because we live in a land that is controlled by social welfare. It may hit the middle classes who are not currently on welfare by taking away £100.00 of disposable income, but the fact is that energy prices are controlled by a complex set of issues, the dominant ones being largely out of our control unless we fully take control of energy production and the resources that power it, riding roughshod over environmentalists, planning regulations and unions.

    The current Grangemouth behaviour from the unions is an example of the luddite attitude of the unions and the workforce they represent. We live in a new world where we have given up control over our destiny to other countries who aren’t worried about whose toes they tread on, so we had all better get used to this situation because it is only going to get worse, a lot worse! Warren is correct, if the public spent less time reading up about the dietary problems of some faded X-factor star and more time on current affairs (BBC morning news is now like a page from Hello Magazine rather than a news and current affairs portal)then perhaps a more reasoned and rational debate would result, and we could collectively reduce our exposure to economic forces outside of our control. I would also point out that a great many of the nations workforce will have pensions that are dividend linked to the very companies that are being discussed here. Be careful of what you wish for!

  8. October 23rd, 2013 at 05:08 | #8

    @Robert in Canada “safe proven methods such as fracking” – really. Fracking has never ever caused any environmental issues anywhere, ever? And the EROEI is worth it? And for how long? The main ‘problem’ is this; we are on the rapid downward slope approaching an energy cliff and the governments only answer seems to be more dirty fuels. The money from Noth Sea gas should have been invested in creating skills and infrastructure in tidal, not just for ourselves but for export. We should be Kings of Tidal. Instead a few got very rich and pissed it away. Now there is no sensible strategy and we have been put in a position of relying on imports. Q1: Where are we going to get the energy from? A1: Well,we should of thought of that a long time ago – as we are getting ‘desperate’ [looking at fracking / UCG] hadn’t we better start looking at REDUCING demand???

  9. 48ozhalfgallons
    October 23rd, 2013 at 09:27 | #9

    Sounds like a Charles Dickens novel.

  10. Athabasca Joe
    October 24th, 2013 at 15:29 | #10

    I see the term “dirty fuels” is spreading. That’s the new catch phrase emigrating from the US. Turns up in Government infomercials, cartoons etc. I guess something had to replace “Peak Oil” after all.

    The energy debate needs to be removed from all the hyperbole. Reasoned pathways forward determined using ALL of the proven, cost effective, no subsidies, resources available.

    Enough of the Chicken Little decision making process.

    But that’s just my 2 cents.

  11. Socratic48
    November 6th, 2013 at 01:11 | #11

    The former executive and now Archbishop of Canterbury has a valid point to make.. business and its “power has a greater responsibility” than just profit and shareholders. Frankly my view is that small and large abuses of power,larger egos and excess profit can have unintended consequences. When will corporate leaders develop a more balanced view about their role?. Perhaps some altruism,less profit and Greater and wider acts of consideration could well plant seeds of opportunities and payback beyond old fashion market or global domination/survival. Elitists use your power more wisely. History is “champing at the bit” to repeat itself, capitalism is seriously under threat. Look around, there are plenty of countries,cities,towns,communities of many disillusioned people who are being pushed “a tad too far” and may well be on the precipice of social mayhem. (& they are not just in the middle east!!), also I DO NOT advocate Socialism as the panacea .. nevertheless, in 2013 we seem to know so much but we also seem to UNDERSTAND so little!!!

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