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Ilargi: Energy Is A Power Game – 3 (They Cheat And They Lie)

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Yves here. This post is important not just in and of itself but also as an example of the methods and costs of rent-seeking.

By Raúl Ilargi Meijer, editor-in-chief of The Automatic Earth, Cross posted from Automatic Earth

My personal view of how communities should manage the production and distribution of their basic necessities is very different from what has become the accepted model in the western world. The running mantra says that private industries are better at anything and everything than governments are, and hence, than communities are.

What I think is that even if that were true, and from what I see it’s much more of an ideology than a proven fact, even if it were true it wouldn’t make any difference. Because as far as I can see, it’s essential and crucial to the well-being, and indeed the survival of a community, to control production and distribution of its basic needs. It may not be evident at all times, but, like with so many things, when shortages or other problems set in, so does reality. And a community will realize too late that it’s fine to pay a small prize for its independence.

And here, after Energy Is A Power Game – 1 and Energy Is A Power Game – 2 (Britain Is Losing), I return one more time to Britain and its energy politics. After Thatcher was done, the British people were left with very little ownership of both their energy sources and the relevant distribution systems. It may have taken 25 years or so, about an entire generation, but today the bills are due for what was decided under her leadership and her alleged free market beliefs. And now the people are stuck. Exactly how stuck they are is what they will find out from here on in, and they’re not going to like it one bit.

But there’s little left to do, the die have been cast. There are voices now clamoring for a “full-scale” reform, but they had one of those 25 years ago, and it created, instead of the promised increase in competition and decrease in prices, an – often foreign-owned – energy cartel that now has an iron grip on Britain.

Today, October 29, the Commons Energy and Climate Change Select Committee will start doing a lot of posturing when they get to “grill” the heads of their big six energy corporations. But other than a ton of questions, mucho posturing and a few superficial changes, plus lots and lots of promises made to allow everyone to save face at least to some degree, the MPs are powerless and toothless. They can ask any question they want, but control over power generation and distribution in Britain has already been squandered away.

They could hypothetically elect to re-nationalize the entire industry, but while it may be the only possible way to go down the line (as industry insider Euan Mearns also suggested), that’s not going to happen any time soon.

UK household gas prices have risen faster than in any other major European country

Household gas prices in Britain have risen faster than in any other major European country, the Sunday People can reveal. Research shows they rocketed by nearly 200% in 10 years, compared with less than 40% in Denmark. And the whopping increases show no sign of being curbed after ScottishPower became the latest Big Six energy company to put up its prices. The firm announced a rise of 8.5%, joining Npower’s 11.1%, SSE’s 8.2% and British Gas on 8.4%.

The rises will hit five million British families already choosing between heating and eating and push them even further into fuel poverty. And it makes the UK second only to Estonia for customers struggling to pay their energy bills. Shadow energy secretary Caroline Flint told the Sunday People: “These figures lay bare the full scale of the cost of living crisis facing Britain.”

Energy prices in Britain are double those of the US, although lower than in Germany, France, Ireland and Spain. But France and Spain cap rises by making prices fit an index-linked formula. Labour leader Ed Miliband is planning something similar by freezing energy prices for 20 months if he becomes PM in 2015. That is predicted to save 27 million homes an average of £120 a year.

I have no idea if the people in Britain were aware of this, but it seems obvious that once they do, it’s not going to make them happy. A 200% rise in a decade looks pretty insane, especially when that decade contains a full-blown financial crisis. And the questionable behavior continues:

Energy firms raised prices despite drop in wholesale costs

Some of Britain’s big six energy companies have seen their wholesale electricity costs fall over the last three years while still putting up prices for millions of households. The figures will put yet more pressure on the firms to explain why bills and UK profits have been going up, as they appear before a influential House of Commons committee of MPs.

According to Ofgem, Npower paid an average of £59.61 per megawatt-hour for electricity in 2010. The average wholesale price fell by 4% to £57.32 in 2011 and rose by less than 2% to £58.39 in 2012. The company increased retail prices by 5.1%, 7.2% and 9.1% respectively in those years.

Similarly, EDF paid wholesale prices for electricity supplied to households of £58.16MWh in 2010, falling by 0.6% to £57.82 in 2011 and rising less than 5% to £60.68 in 2012. In those years EDF’s electricity prices to customers went up by 7.5%, 4.5% and 10.8% respectively.

Meanwhile E.ON paid £57.64MWh for its electricity in 2010, rising by 7% to £61.82 in 2011 and falling by 4% to £59.44 in 2012. It raised its power prices twice by a cumulative 20% in 2011, before cutting them by 6% in 2012.

Asked why wholesale prices appeared to be out of kilter with increases in bills, companies said network and environmental costs had been the biggest factor in higher electricity bills, which are now around £600 a year on average. However, figures from Ofgem indicate electricity network costs have only risen by £10 in each of the last four years, while green costs are rising by a similar amount. Green and social levies make up £112, or less than 9%, of the average household energy bill.

Perhaps an even bigger problem, however, from an ethics point of view, is what the energy companies have been pulling behind the curtain:

British Gas rakes in £20 million profit from overestimated bills, says whistleblower

Energy giant British Gas is siphoning off millions of pounds of extra profits annually by keeping hold of money owed to former customers who have built up credit on their accounts. A whistleblower has told the Observer that £20m-worth of “credit balances” was put into the annual accounts of British Gas in one recent financial year. The shadow energy secretary, Caroline Flint, said she was “shocked” by revelations about the credit windfall, which she said was “unacceptable”.

Under the current system, energy companies estimate customers’ future usage and charge accordingly. If less energy is used, credit is built up which can be reclaimed or used to offset higher-than-expected subsequent bills. The profits from “credit” were taken by British Gas in cases where private or business customers had been overcharged on the basis of estimated bills, and then changed to another supplier, or ceased using British Gas for other reasons, with the outstanding sum owed to them still on their accounts.

British Gas – which argues that it is unable to track down all customers who have left them, changed addresses, or gone bankrupt – used to wait six years before taking the cash. But the whistleblower claims a special team was set up – partly based at a Leicester call centre – to fast forward this process so that investigations to locate people would be launched, and the money then taken into company accounts over a much shorter timescale.

Under this new arrangement, British Gas then took years of accumulated credit owed on accounts to augment its income. While there is nothing illegal about this, the source said British Gas was apparently nervous about how the move would be viewed if it became public. “We were briefed about how sensitive this was and there was endless talk about how this would look if it ended up on the front page of a newspaper,” said the whistleblower. He believes that all the other power companies also take this kind of money back into their accounts as profit but only after six years.

These guys are pretty shameless. And why shouldn’t they be? Who’s going to touch them? Who do we think controls what here?

Record numbers fight to claim back £1.2 billion overpayments which make energy companies £12 million interest a year

Sunday Mirror research shows that energy firms are sitting on direct debit customers’ credit – and raking in £12m a year interest. Record numbers of customers are battling power giants to claw back the £1.2 billion they have overpaid. The independent energy ombudsman is being flooded with billing complaints after the Sunday Mirror last week revealed the massive scale of the scandal. Our research found energy firms were sitting on the fortune that belongs to direct debit customers in credit – and raking in more than £12 million a year interest.

Nine out of 10 complaints to the ombudsman are about bills. The most common problems are mistakes on charges and inaccurate meter readings. In the past two months alone the ombudsman has agreed to investigate 3,304 complaints – up from 1,533 in the same period last year. A spokesman said: “These are cases we have accepted for investigation. “We have dealt with thousands of complaints from people who say they have been overcharged.”

Not that they’re ready to give a single inch, and again: why should they?

Energy giants: Our profits aren’t large… as direct debit interest helps them rake in £3.7billion

The head of Energy UK has claimed the Big Six energy firms do not make large profits – despite the £3.7 billion they raked in last year. Angela Knight, chief executive of the body that represents the energy giants, made the claim as details emerged of the widespread tax avoidance employed legally by energy firms. It was also revealed that companies are making an estimated £36 million a year in interest on the credit built up by customers paying via direct debit.

Miss Knight, a former Tory MP, said: ‘They might be politically popular, but price freezes have never worked and never will work,’ she said. ‘Windfall taxes have taken place in the past where there have been windfall profits. The profits here of four or five pence in the pound aren’t particularly big.’ [..]

While the Big Six – British Gas, SSE, nPower, E.On, EDF and Scottish Power – make profits of around 4 or 5% from supplying energy to households and businesses, they make an average of 22% from generating electricity, sourcing and storing gas, and transporting energy. [..]

More than three million older people are worried about staying warm indoors this winter – with six million anxious about rising fuel bills, says Age UK. But the charity said many are unaware of the potentially fatal consequences of living in poorly heated housing.

A 22% profit ratio. That’s quite something for an industry that should serve a society’s basic needs. Still, this next bit is at least as tasty:

The other energy scandal – power giants use loophole to cut their own tax bills

As Britons buckle under the pressure of soaring energy bills, The Independent on Sunday can reveal the energy companies that are saving millions by exploiting a legal tax loophole.

Scotia Gas, 50% of which is owned by SSE, the energy giant which is about to put its prices up by more than 8%, has avoided an estimated £72.5m in tax. UK Power Networks and Electricity North West, responsible for running large sections of Britain’s electricity network, have both saved more than £30m.

UK Power Networks, which owns and maintains power cables and lines for eight million people in London, the South-east and East of England, has avoided an estimated £38m since 2010 from paying £164.4m via the Cayman Islands to firms controlled by Li Ka-shing, a Hong Kong tycoon and Asia’s richest man. His Cheung Kong group also owns Northumbrian Water, among several water firms that use the quoted Eurobond exemption.

Electricity North West owns and operates the region’s electricity distribution network, connecting 2.4 million properties to the National Grid. It has avoided an estimated £30m in tax after sending £107.2m to its owners, JP Morgan Infrastructure Investments Fund and Colonial First State, since they bought it in 2007.

More than 30 UK companies have cut taxable profits by racking up interest on debt from their owners. In doing so, this minimises – in some cases wipes out – their UK corporation tax bill. As most of the owners are based abroad, 20% of the interest payments would usually have to be sent straight to HMRC, minimising the overall saving. But as the money is lent via offshore stock exchanges that qualify for a regulatory loophole called the “quoted Eurobond exemption”, no tax is withheld.

Scotia Gas is the second-largest gas distribution firm in the UK, serving 5.8 million people in Scotland and in the South and South-east of England. While half of it is owned by SSE, the rest is owned by the Ontario Municipal Employees Retirement System and the Ontario Teachers’ Pension Plan. After they bought the networks from National Grid Plc in 2005, the new owners lent the majority of their money – about £530 million at a 12.5% interest rate – through the Channel Islands Stock Exchange rather than investing it in shares in the company. Scotia has since paid interest of £537.3 million on these loans.

The Ontario Teachers’ Pension Plan also owns National Lottery operator Camelot and Bristol Airport, both revealed to be using the tax-avoidance scheme last week. It is among several foreign pension funds investing through this legal loophole. [..]

The Eurobond exemption was introduced in 1984 to encourage third-party investment into UK companies. But analysis of listings on the Channel Islands Stock Exchange and UK company accounts shows firms across the economy are using it to minimise tax bills by borrowing from their owners. More than £2bn a year has left the UK as interest payments to owners, avoiding an estimated £500m, compared with if loan amounts had been invested in companies’ shares. Given that other stock exchanges such as the Cayman Islands and Luxembourg qualify for the exemption, the total tax avoided is likely to be even higher.

UK Power Networks owner, Hong Kong tycoon Li Ka-shing’s Cheung Kong group, which also owns Northumbrian Water and several other water firms, avoids taxes through the Caymans. Scotia Gas, co-owned by energy giant SSE and the Ontario Municipal Employees Retirement System and Ontario Teachers’ Pension Plan, does it through the Channel Islands. The MO: they buy a company and lend it money at very high rates. On the case of Scotia Gas, since 2005, the new owners already made more in interest than the principal they put in in the first place. And counting.

This Eurobond exemption Thatcher set up may be a great profit machine for investors with deep pockets, but it’s mayhem for both the British nation as a whole, which loses £100s of millions in tax revenue, and for the taxpayer, who also doubles as client of one of the Big Six energy corporations. AND has already seen her/his energy bill rise 200% in 10 years, AND gets another 10% slapped on just in the next year. AND may want to check to water bill too, because that’s at least partly foreign owned as well.

Which makes me wonder how Thatcher followers, like Cameron, would today defend the decision to sell off all the public utilities she could get her hands on. Would they want to claim that it would have been worse if she hadn’t done it? Is that even possible? You deliberately set up an instrument to allow foreign investors to not pay taxes that a domestic investor would have had to pay?

Five questions that the big six energy firms must answer

The bosses of the big six energy companies will appear before the energy and climate change select committee on 29 October. The powerful group of MPs, chaired by Tim Yeo, will grill them on green levies, profit levels – and why consumers face such big increases in their bills. These are the questions they should ask: [..]

The companies will argue that their costs have risen hugely because of wholesale power price increases and “green” levies. Don’t take this at face value: companies buy a portfolio of future contracts lasting many years to ensure that their wholesale supplies will meet future retail demand. If they have underestimated their needs, that is their responsibility – and they could choose to absorb that cost. No one knows how much the power companies have bought in advance – and at what price – so independent experts have to take their arguments on trust. Green levies make up only 9% of the overall bill currently, a figure that will rise to 14% by 2020.[..]

Why is it that 30 years since the market began to be liberalised, a group of enormous firms still have a stranglehold over the sector? And why do they all put their prices up pretty much at exactly the same time, if they are not acting in concert in some way?[..]

Days ago, the last of the big six, Scottish Power, paid an £8.5m fine after Ofgem found inadequate training and monitoring of staff had led to inaccurate information on annual charges, consumption calculations and tariffs being given out. E.ON, which was fined £1.7m in 2012 for overcharging, had to pay an additional £2.5m this summer to help its poorest customers meet their fuel bills this winter after it was found to be selling low-energy light bulbs it should have given away. SSE was fined £10.5m for “prolonged and extensive” mis-selling, while British Gas was fined £1m two years ago for misreporting how much energy it had supplied.

Here’s a certain Dr. Phillip Lee, not coincidentally, I’m sure, a Conservative MP, calling for that full-scale reform which Thatcher already pushed through. He starts off with “Britain’s energy market is broken.”, and I’m thinking yeah, well, it was your guys and gals that broke it. And if you get to shape the next “reform” as well, what are the chances that this time around you’ll get it right, that you will actually put your voters’ interests first? If so, please explain what has happened to change your position. If you think the first round was badly bungled by your own party, then undo it. Retrace your steps. Engage the people, ask what they think needs to be done.

But that’s not Dr. Lee’s agenda. Quite the contrary, really. He’s a reconnaissance trooper, a first line combatant, ordered to promote the notion that what is wrong in the UK’s world of energy, is that pesky and very unfortunate 2008 Climate Change Act, which legally binds the government to all sorts of emissions standards.

After all, let’s be honest, how can domestic and foreign deep pockets maximize their profits selling power to British homes if they have to take all these CO2 related issues into account that they don’t even “believe” in? It’s just not fair …

Only full-scale reform of our energy market will prevent endless price rises

Britain’s energy market is broken. The most recent hike in prices is just the latest sign. There are more to come, and the unedifying thinking aloud from the political establishment is not going to fix it. We need full-scale energy market reform.

There is nothing we can do with today’s UK energy market to stop consumers from being hit by even more unfair price increases. Just as worryingly, it is impossible to guarantee that the UK’s current market and our energy policies will make it possible to meet the demand for affordable energy, which is mushrooming as our economy grows, our population rises. It does not work like that.

In fact, it is not clear that a true market in energy exists. Fears about an energy oligopoly – a market dominated by a few huge companies – are being replaced by ones of a monopoly as price rises are announced almost simultaneously by the “Big 6″ companies. [..]

Britain needs to take a much longer-term view of how it uses energy. Over the last four decades California’s economy has grown eight times without its energy usage increasing. We can do the same here. Our focus needs to be on energy efficiency, not on subsidising intermittent, renewable energy generation. In our increasingly populated and energy-demanding world, wholesale energy prices will not go down any time soon. We must be honest about that and introduce policies which will mitigate the impact of that reality on our lifestyles and our children’s future.

In this context, we need to revisit the decarbonisation targets set under the previous government. Not because I believe we should abrogate our climate change responsibilities, but because they are destroying important parts of our economy. If this continues unchecked, there will be one less powerful, democratic nation around to effect beneficial change to the environment. A low-carbon Britain with no jobs and no money will not help save the planet. Real progress on decarbonisation must not undermine our global economic position.

The present UK government is legally obliged to reduce greenhouse gas emissions by at least 80% by 2050, but they’re thinking: why should we care about the law when we are the ones making the law?! And if the government so obviously flaunts the law, how can it force companies to uphold it? How can it? It doesn’t even want to. It’ll just change the law. That’s what Dr. Lee’s letter to the editor is announcing in veiled terms. Accompanied, of course, by the scare tactic that if people don’t comply, their electricity and gas bills will rise even further. It’s like a 21st century scorched earth strategy.

And they really don’t give a rat’s derriere about the law. Any law. Not if it stands in the way of increasing profits. These people just use the billions they ostensibly spend on reducing emissions as a further profit vehicle for their friends, paid for by the taxpayer. Who will invariably be left with less money and more emissions.

Statistics suggest UK is not on track to reduce emissions by 2020

The government has announced it is on track to reduce emissions by 34% by 2020, yet key statistics suggest that carbon dioxide emissions are actually on the rise. Government figures from the Digest of UK energy statistics (DUKES), published in July, state that UK emissions of greenhouse gases between 2011 and 2012 increased by 4.5%.

Under the 2008 Climate Change Act, the UK government is legally obliged to reduce the UK’s greenhouse gas emissions by at least 80% (from the 1990 baseline) by 2050. The UK was the first country in the world to establish a legally binding climate change target. But despite mass green-energy schemes, the figures suggest that the UK is relying heavily on coal, as opposed to renewable energy. [..]

So far, £35 billion has been invested in low-carbon initiatives since 2010, but according to the government this will have to increase by 310% in order for them to hit their targets.

The government’s “lavish” subsidies on renewable energy programmes have faced growing criticism, with the TaxPayers Alliance arguing that the schemes are simply being funded by consumers through higher household energy bills.

But Davey said: “We’ve already had record amounts of planned investment in the energy sector and today we have given further confidence to the industry of the support available from government for new energy infrastructure out to 2021. [..] Our latest projections show that we are on track to meet our first three carbon budgets, but we recognise the scale of the challenge that we face in delivering further emissions reductions and meeting the target of the fourth carbon budget”.

The government claims emissions are down, and they’ll make their 34% 2020 reduction target, but in reality those same emissions rise 4.5% per year. What do the people know? And who cares anyway? What does it take to scare them enough? If you claim prices will rise by 20% per year, will they agree to let you soften the emissions rules? How about 50%? Everybody has a price, right?

And Cameron is in “good” company. The Canadian government thinks the same way, no matter what anybody says, as of course does just about any other government on the planet: done with the niceties once the bottom line gets in sight.

Canada says falling short of emissions reduction target

Canada acknowledged on Thursday that it will miss its target for greenhouse gas emissions by a wider margin than expected unless it takes further action to offset emissions in the oil industry.

The admission in a report by the environment ministry comes as the Conservative Prime Minister Stephen Harper is actively pushing development of the Keystone XL pipeline, which critics say will encourage production in the Alberta oil sands, a top emitter.

Canada signed the Copenhagen Accord in December 2009 and committed to reduce its greenhouse gas emissions to 17 percent below 2005 levels by 2020. It estimates the country will produce 734 megatonnes (MT) of greenhouse gases in 2020, or 122 MT (20%!) higher than its promised target.

Of course, one way to make sure complaints about emissions targets go away is to get rid of those whose job it is to keep track of them:

Massive job cuts at the Environment Agency

The Environment Agency is to shed 1,700 of its staff as it faces larger than expected government-led budget cuts. The 15% cut was reported in “The Ends Report” magazine on Friday [..] 11,400 members of staff make up the non-departmental agency, which is a body of the Department for Environment, Food and Rural Affairs (DEFRA). The cut will come into force by next October.

The organisation monitors the implementation of environmental regulations and delivers the government’s green commitments. DEFRA itself is facing budget cuts of 10% as part of Westminster’s austerity measures, meaning the Environment Agency’s cuts are deeper than expected.

The energy companies cheat and lie, and so does the government. Not a great thing to realize, certainly when you face huge future problems because of a fast shrinking domestic energy supply. One source we’ve not looked at yet is imported (shale) gas, an option the Cameron team has its eyes on. Unfortunately for them, even Royal Shell’s own CEO says this bubble will burst before it goes anywhere. Nor does Shell want anything to do with British shale. Another major blow to the government.

Shell CEO Peter Voser: cheap shale gas is a myth

It is a “myth” that exports of cheap shale gas from America will cut gas prices in Europe and Asia, Peter Voser, chief executive of Royal Dutch Shell has warned. America is sitting on a glut of shale gas that has seen prices plummet to as little as a third of UK prices. It is now in the process of developing export terminals where the gas will be cooled for shipping abroad as liquefied natural gas (LNG).

UK politicians have hailed the prospect of Britain importing cheap gas from the US as one solution to help consumers struggling with rising energy bills as domestic gas production dwindles. But Mr Voser said that the idea of “cheap US gas going into the rest of the world and therefore changing the pricing structures across the world” was a “myth”. The price impact of US exports would be “not that significant” because the additional costs of liquefying, transporting and then re-gasifying the gas would mean its eventual cost was comparable to existing market prices, he said.

Earlier this year British Gas owner Centrica struck a £10bn deal to export LNG from the US, welcomed by David Cameron, the Prime Minister, who claimed that “future gas supplies from the US” would help provide British consumers with a new “affordable” source of fuel. Former energy secretary Chris Huhne last month urged the UK government to pressure the US to allow more exports, which he claimed would “gradually equalise the gas price in the US with the rest of the world” and help reduce UK prices.

Shell has repeatedly played down the prospects for shale gas development in Europe and the UK. It has shunned involvement in the embryonic UK shale industry – which the Prime Minister has also suggested will cut energy bills. It is involved in shale gas exploration in other areas like China but Mr Voser said that Chinese shale gas would be consumed by the country’s domestic gas market and would not “alter the pricing mix and the volume in Asia-Pacific”.

So is there anything left to keep the lights on in Albion? Let’s see. Wind and solar can and will be expanded, but as intermittent sources will ever only have a limited impact keeping the electricity grid alive.

Domestic oil and gas – including North Sea are falling of the proverbial cliff. Total discovered gas reserves peaked at 1,985.0 billion cubic metres in 1997, and declined 64.3% to 709.0 billion cubic metres in 2011.


uk-natural-gas-statistics

UKoilfields_to_99

Still, while declining oil production has a negative effect on revenues, it’s not a major factor in electricity generation.

 


UKPowerSources

But as you can see, coal is. And coal is the one thing Britian still has substantial reserves of:

 

 


UKCoalConsumption
 

UKCoalReserves

It becomes a matter of simply ticking off the boxes then. Wind and solar have limited impact, domestic oil and gas numbers are plunging, imported gas is prohibitively expensive.

That leaves nuclear, which nobody really wants because of the risks involved, and coal, which nobody wants either, because of CO2 emissions.

Add to that a political and corporate system that is only interested in maximizing profits for investors, and more than willing to use both the people’s money, and their fear, to achieve it.

Put together, it seems to make it inevitable that in the future the British grid will either be run on domestic coal and nuclear plants owned by Chinese, or not run at all.

And again, my personal view of how communities should manage the production and distribution of their basic necessities is that they should keep control of them in their own hands, and close to their chest. The UK has signed away control of their power to the likes of an Ontario pension fund with offices in the Channel Islands, and a Hong Kong tycoon who does business via the Caymans. And controls substantial parts of the UK water supply as well.

There are no good reasons to sign away such controls to anyone outside your own society, and there are very good reasons not to sign them away. The first step for the British should be to regain control of their energy and water. And then take it from there. It’s going to be far from easy, but at least you won’t have anyone but yourselves deciding your fate. And that’s not just something that should be a priority for Britain of course, it is a universal truth. After all, why on earth would you want someone 5000 or 10,000 miles away decide if you can heat your home or switch on your lights?

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28 comments

  1. Moneta

    I looked at some of these UK issues a couple of years ago.

    It is such a complex industry controlled by politics and ripe for manipulations. Many utilities wanted to invest in their infrastructure but government would not let them because they wanted to cap or control prices… price increases are usually based on costs… now I see that it is happening anyway… surprise, surprise!

    And many of these privatized utilities are ending up getting bought up by DB pension plans which are running around the world looking for easy money.

    I will keep on repeating myself… as long as our pension system is being controlled by the large BD plans trying to fund themselves, the current issues will not subside.

    Also, the UK is another country living beyond its energetic means and due for an adjustment. The writing was on the wall.

    1. from Mexico

      Moneta says:

      Many utilities wanted to invest in their infrastructure but government would not let them because they wanted to cap or control prices… price increases are usually based on costs… now I see that it is happening anyway… surprise, surprise!

      Yep. It’s all the fault of those overzealous government regulators who won’t let the hallowed capitalists do their job. Or did you manage to miss something, such as this?

      According to Ofgem, Npower paid an average of £59.61 per megawatt-hour for electricity in 2010. The average wholesale price fell by 4% to £57.32 in 2011 and rose by less than 2% to £58.39 in 2012. The company increased retail prices by 5.1%, 7.2% and 9.1% respectively in those years.

      Similarly, EDF paid wholesale prices for electricity supplied to households of £58.16MWh in 2010, falling by 0.6% to £57.82 in 2011 and rising less than 5% to £60.68 in 2012. In those years EDF’s electricity prices to customers went up by 7.5%, 4.5% and 10.8% respectively.

      Meanwhile E.ON paid £57.64MWh for its electricity in 2010, rising by 7% to £61.82 in 2011 and falling by 4% to £59.44 in 2012. It raised its power prices twice by a cumulative 20% in 2011, before cutting them by 6% in 2012.

      Asked why wholesale prices appeared to be out of kilter with increases in bills, companies said network and environmental costs had been the biggest factor in higher electricity bills, which are now around £600 a year on average. However, figures from Ofgem indicate electricity network costs have only risen by £10 in each of the last four years, while green costs are rising by a similar amount. Green and social levies make up £112, or less than 9%, of the average household energy bill.

      Moneta, you have a wonderful knack for blocking out those facts which do not conform to your world view, or on the other hand for just making up whatever facts are necessary to confirm it, as you did on this thread yesterday:

      http://www.nakedcapitalism.com/2013/10/attention-deficit-disorder-and-the-real-crisis-ahead.html#comment-1553939

      So it’s garbage in, so why shouldn’t we expect anything but garbage out?

      1. Moneta

        Mexico,

        I have noticed that you tend to focus a lot on words. Words are important but resources are too.

        I could say the same thing about you. I find you pick and choose the time frames that correspond to your worldview. On top of that, you keep on citing old philosophers who thought the 4 humors controlled everything.

        I have been following the resource industry for over 20 years and I am a number junkie. I don’t pretend to know everything and not make some mistakes but I know my stuff. I am a leftie who has had the opportunity/misfortune of working with the corrupt elite, and leaving disgusted. Therefore, I know how they work, think and I also know who owns what.

        I believe in fairness but I also understand that there is a definite energetic reality that will reshape our economies over the next decade.

        I believe that to save the middle class, it must first understand how energy thirsty it is. Not many are looking at this. Most just want the status quo which is increasing consumption of energy without a change in lifestyle. They just want government to keep on printing and investing in infra without even recognizing that sustainability is a huge issue.

        IMO, when you disparage me, you are just damaging the left showing how it can’t get its act together.

        1. from Mexico

          What? And just overlook the barrage of misinformation that issues from your keyboard?

          None of this information about the history of energy production, consumption, or price is secret. It’s all at your fingertips, right on the internet. So if you’ve been “following the resource industry for over 20 years” and you are “a number junkie,” how is it you manage to get the numbers so wrong?

          And I think it’s you who focuses a lot on words and tries to substitute rhetoric for a command of data and facts. There’s nothing wrong with rhetoric, but it falls a little flat when it departs too far from reality.

          1. Moneta

            A significant percentage of electricity production in the UK also depends on coal which has also increased in price.

            Whether you pick and choose the data I offer and distort what I say, the reality is that the price of fossil fuels has ballooned since 1990 and there has been a lag effect in consumer prices.

            Oil might represent a small percentage of our economy but that’s because it has offered tremendous leverage. And that’s what makes oil so important. A drop of 10% in the availability of joules in the US would probably lead to a GDP contraction much bigger than 10%.

            There are a lot of important variables to describe what is happening in the world and oil is a very important one.

            1. from Mexico

              Moneta says:

              Whether you pick and choose the data I offer and distort what I say, the reality is that the price of fossil fuels has ballooned since 1990 and there has been a lag effect in consumer prices.

              And that makes it OK for the utility companies to gouge their customers, not pay their taxes and elide ameliorating carbon dioxide emissions?

        2. Clive

          If it’s any consolation moneta, I think you’re right. I too am a energy stats nerd and, at least in the UK which is all I can speak on with any authority, energy demand is set to grow.

          From

          http://www.nationalgrid.com/uk/Electricity/ten-year-statement/current-elec-tys/

          ETYS 2012 Document pg. 20, graph “Figure 2.3.1:
          Peak outturn and forecast” — the best, that’s “best” case note — is a flat growth in electricity demand in the next 20 years. All other scenarios show growth (which the utilities are trying to get money to satisfy, which is your main, and very valid point).

          No-one is seriously talking about major reductions in electrical demand.

          Now, we can play energy substitutions and say that certain types of petroleum product demand may fall e.g. refined gasoline but even there, you don’t get the full picture as a lot of domestic demand is not shown because fuel oil (for sea transport of finished manufactured goods or their components) appears in the exporter country’s consumption, not the importer country’s (and it is the importer country which is in reality incurring the consumption, unless the exporter country just fancies sending things half way around the world for the fun of it).

          I can dig out even more compelling evidence of natural gas consumption demand increases being forecast.

          So, again, for the UK anyway, it’s a picture of relentless increasing energy demand (with modest falls only in certain types of energy product). No realistic possibility of anyone figuring out how we can reduce energy consumption *over all*.

          As you surmise, there’s no money in it, so why should anyone in the “free market” system try to bring it about ?

          (PS — good luck with from Mexico, I’ve tried and failed miserably in having any of my points to get past Mr. Eyes and lodge in Mr. Brain with s/he; I’m happy to admit defeat as I’m woefully inadequate in making any sort of argument. I just wish I was as certain about anything as from Mexico is about everything. And in that I’m doubly sad because, true to form, here we are on the left merrily engaging in our own smackdowns while on the right, the looting and pillaging continues with single minded solidarity and relentless focus on getting from A (a fair society) to B (complete klpetocracy). We will, alas, never learn from them.

          1. from Mexico

            So let me get this straight.

            The utility companies have to gouge their cusomers today in order to get the money to pay for future capital investment?

            Phew! Who can argue with logic like that?

            And the ad hominems, by the way, don’t help your argument.

            1. from Mexico

              I should have added, as Ilargi pointed out: So the utility companies have to gouge their customers today and not pay their taxes so they can get the money to pay for future capital investment?

              With friends like you “on the left,” who needs enemies?

              1. Emma

                It’s simply another fine example of our world increasingly representing the interest of the minority over the majority.

              2. Carla

                This is the way I put it, in US-centric terms, translate to whatever “conservative” and “liberal” parties you like, wherever you like:

                The Republicans tell you they’re going to F*** you over, and then they F*** you over.

                The Democrats tell you they’re going to Help you, and then they F*** you over.

                The U.S. Supreme Court says money is speech. If money is speech, then those who have the most money, have the most speech. What does that do to one person, one vote?

                http://www.movetoamend.org

    2. Moneta

      http://www.lincolnshiresolar.co.uk/solar/index.php?option=com_content&view=article&id=68&Itemid=82

      Oil from 1991 to today has gone from 18$ to 100$ = 5.5X

      Gas from 2$ to 4$ = 2X

      But the electricity price over the same interval seems to have increased by 1.8X.

      There is a lag effect. And as I said yesterday, the world economy is still adjusting for the increase in energy prices over the last decade.

      However, I do agree with Yves that countries should protect its energy production and not sell out to foreigners. But who knows, maybe countries over the next few years will turn protectionist and squeeze those foreign investors.

        1. Carla

          Of course water is next.

          I live right on the edge of the largest surface freshwater system on Earth (the Great Lakes of the U.S.) and in my town, water and sewer rates have more than tripled in just the last few years.

          Of course, the next step is privatization “to save money” dontcha know.

      1. from Mexico

        Speaking of natrual gas prices in the UK, they have gone up much further than in the US. Up until 2000, natural gas on the NBP traded at about $2.00/mmbtu. Now it’s trading at close to $10.

        But as Ilargi points out, only 27.7% of the UK’s electricity is generated from natural gas. And only 0.9% is generated from oil.

        Which brings me to my main point. The overall message conveyed by your comments, both today and in the past, is to lay the blame for all that ails humankind at the foot of increased energy prices. And you are far from being alone in this. It is something one hears incessantly in the blogsphere.

        The problem I have with that is that increased energy prices make a wonderful scapegoat. Things that should be blamed on a government that serves only the interests of transnational capital, which has sold out to and become part and parcel of a supranational governing class, get blamed on increased energy costs.

        Now I’m not arguing that energy prices are not important. They are. But are they the only thing that’s important?

        If we look at total energy expenditures in the US, in 2010 they accounted for only 4.7% of GDP. This is up from 3.3% in 1998 and 1999 before oil prices more than quintupled.

        On top of this, we must consider that the US is one of the most energy wasteful countries in the world. Its per capital energy usage during the 2008 to 2012 period was 6,793 kg of oil equivalent. This compares to the UK at 3,043; and Germany at 3,754; and Japan at 3539. (Canada is an even bigger waster than the US at 7,243!)

        So how can we blame all that ails an economy on something which makes up such a small part of the overall economy, from 3.3% of GDP at its low point to 4.7% of GDP at its high point? The increase cost amounts to only 1.4% of GDP.

        1. c1ue

          @from Mexico/10:39

          You said:”If we look at total energy expenditures in the US, in 2010 they accounted for only 4.7% of GDP. This is up from 3.3% in 1998 and 1999 before oil prices more than quintupled.

          Whether deliberately or not, the use of GDP as a comparator is a very poor choice. For one thing, energy prices – if they are imports – have an effect far above and beyond the equivalent dollars paid on ‘internal’ spending. Dollars spent on domestic functions recycle through the economy far more efficiently and widely than dollars paid to Saudi Arabia – which incidentally drives down the ‘percent of GDP’ impact of energy spending even as it magnifies the economic impact of said transfer payments.

          Secondly, you place energy prices stand-alone. How about comparing vs. other real world needs like food and clothing?

          Then there’s the entire ripple effect of energy prices. How do higher energy prices translate to goods prices?

          If you want to attack the Illargi view that this is all a function of corporate greed, look instead to the combination of fossil fuel prices – which you touched upon but failed to illustrate well – as well as the numbers games being played with ‘only’ 112 out of “about” 600 pounds.

          Well, if we look at 10 years ago when said expenditures were ‘only’ 300 pounds, then the 112 pounds is an increase of 37%. That’s over 1/3 of the overall increase.

          10 years of say, 2% inflation on the base 300 pounds yields another 22%.

          The remaining 41% increase? At least some of this is due to fossil fuel prices leaving a much smaller slice cut out due to the ‘greed’ of said power companies.

          I also note that mandates for various feed-in power schemes also have the impact of increased distribution, transmission, and grid management cost – this too is left unmentioned.

          All in all, no plaudits for anyone in the energy situation in the UK.

  2. from Mexico

    Thank you so much for this.

    Mexico is now in the throes of something similar, as its new president, Peña Nieto, wants to do a Margaret Thatcher on Mexico and privatize Mexico’s energy production and distribution system. In the sights of Peña Nieto’s “energy reform” are not just PEMEX but the nation’s electric grid as well.

    Privatization is code for selling off a nation’s infrastructure and natural resources to the transnational capitalist class.

    As many Mexicans fighting the battle against privatization have pointed out, the transnational capitalist class has no pueblo. It is like an invasion from outer space. It has labored long and hard to set itself apart from any community or any nation of people. It’s only loyalty is to profit. It only serves profit.

    So once again thanks for this. I have forwarded it on to several friends.

  3. allcoppedout

    Thanks for this Yves. We also lost two great educating bodies when the gas and electric boards were privatised. Huge stats are available here for anyone interested:
    https://www.gov.uk/government/collections/international-energy-price-comparisons

    We still have people who think Thatcher’s legacy is a good one, though we may now have a majority that has realised private sector solutions have mostly turned corporatist lemons. The real answers lie much deeper. Energy should be written out of the competition equation.

  4. Moneta

    Many DB plans have been jumping into alternatives (i.e. infra). In Canada, they have been scouring the planet for deals, especially in the UK.

    The returns look good on paper. During ramp up of 5-10 years, they record 5-7% returns which is essentially return of capital. During this time they manage to reduces volatility because these are not traded on the market and valued based on appraisals.

    However, I predict that in year 5-7, chances are they will have to inject more capital due to cost overruns AND new protectionist policies.

    Something tells me the UK is too astute to let Canadian retirees get off Scot free.

  5. susan the other

    The true costs of energy, whether new or old energy, will guarantee a permanently depressed “economy” for a long time. The energy companies are in a good position to take advantage of the price rises now at the beginning of this great unwinding. I wish we were smart enough to stop manufacturing and driving cars. Stop feeding the beast; stop prolonging the profits of the profiteers.

  6. Adam Eran

    No mention of conservation as an energy source…and it’s the most economically competitive one. Germans are into “passivehaus” that is net energy positive, for one example.

    Meanwhile, the fossil fuel industries have $20 trillion in proven reserves that must be kept in the ground if the planet is to remain habitable.

    Yes, I know I’m suggesting the authors of the Obamacare website do this, but what if government(s) bought those reserves (the basis of Exxon’s stock price) to keep it in the ground…with that caveat that all sale proceeds be re-invested in a well-regulated renewables / conservation program?

    After all, government is not revenue constrained (at least when it counts…pay no attention to the social safety net troubles, that is manufactured to encourage the others).

  7. Podargus

    Meijer dismisses nuclear electricity generation in one sentence.What a pity that a person with his abilities can be so wilfully and ideologicaly blind.
    That is one of the reasons I gave up reading The Automatic Earth years ago.

    1. Ilargi

      I already dealt with nuclear energy in part 1 and 2, can’t very well repeat it all. But for the record, I see “conventional” nuclear as insane until waste issues are solved, and breeders and/or thorium as equally insane until someone manages to make one actually work on anyscale larger than a table top. Till then, I see any and all nuclear as criminal enterprises.

  8. Hugh

    I would think wind in particular could be a big source of renewable energy in the UK. Has anyone studied what the potential for wind is there? The country also has several large tidal estuaries, parts of which could be used for energy generation.

    1. Nathanael

      Scotland, which has a well-functioning government, is doing some serious development of wind and tidal energy.

      England, which has a much less functional government, is not.

      I have said more than once that England should vote to let the Scottish National Party run the country. I don’t think the SNP would agree to do so however….

  9. TC

    I quite agree with the idea that, “it’s essential and crucial to the well-being, and indeed the survival of a community, to control production and distribution of its basic needs.” Indeed, we might go so far as to argue this is the very purpose of there being a U.S. Constitution!

    Still, there is the matter of the measure of control that is most beneficial for the provision of basic needs. I would argue that, in thoughtful fostering of this measure of control resides the means of eliminating fiscal deficits, as well as abolishing income taxes.

    Enough said for now. Our English cousins will have to resolve on their own the very truth that, the superiority of the constitutional republic that is the United States in principle is its well-formed capacity to provide the very framework for fostering abundance at whose core is the provision of basic needs. Granted, this capacity is largely subverted today. Yet it nevertheless remains available for the seizing. Much like FDR discovered during more modern times in a United States woefully subverted by private finance, necessity is the mother of invention…

  10. JGordon

    More props to NC for linking to Automatic Earth. You guys are on the right path. Now please start cross posting from Dmitry Orlov’s blog. That would be incredible.

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