Over eight years ago, in 2013, I wrote a post on this blog about the absurdity of a supposedly competitive market for electricity, and energy more generally. That absurdity was incipient in the privatization of gas and electricity industries in the UK in the 1980s and early 1990s. It has now interacted with a global energy crisis to create a major problem which, in turn, is contributing to a wider cost of living crisis.
It was an accident waiting to happen. As I wrote in 2013, the idea of ‘shopping around’ between energy providers was a farce because there was no competitive market in what had long been recognized as a natural monopoly. What had been created was, at best, an oligopoly of the six major providers and consumer choice was illusory, That mattered, because the underlying theory of privatization was that choice would lead to competition which would lead to greater efficiency and lower costs. Knock away the first link in this chain and the whole concept (even if it had held water in other ways) was destroyed.
Since then, although the big six always remained dominant, the illusion of choice was sustained by a regulatory change in 2014 which allowed the entry of a large number of new firms. These did indeed sometimes offer consumers cheaper prices, although the highly opaque nature of charging often made comparison hard, and in some cases the option of greener and more environmentally sustainable energy. In fact, I was one of those who did exactly that.
Another way in which the ‘market’ was supposedly made more competitive was by introducing an energy price cap in 2019 to try to prevent companies charging extortionate amounts on their default or standard tariffs to those customers who didn’t ‘shop around’. Again, the very need to do this was an indication that this was not, and could not be, a market in the way envisaged by neo-classical economics.
In the autumn of 2021 these two developments came together to create a disaster. For as wholesale energy prices rose globally the cap meant that companies couldn’t pass on all of these rises to consumers, and it emerged that many of the new entrants did not have the financial resources to survive. In some cases they had also had a policy of last-minute buying of wholesale energy which meant that they had less of a time buffer against price rises. In consequence over twenty of them went out of business, including Bulb, the seventh largest firm.
Since then, the price cap has been raised, by 12% last October, with a further 54% rise to come into effect in April, leading to dramatic increases in consumer bills: the average household energy bill will rise from £1277 to £1971 per year. For poorer households this is a disaster.
And what, now, of choice? First off, the customers of most of those firms that went bankrupt were transferred to one of the big companies, with no choice of which one. My own experience of being transferred to a big firm – ironically, the one I had left a few months before – was a nightmare in itself (and I’ve heard similar stories from others), with incorrect transfers of meter readings, and endless arguments about what money was owed.
Some of these problems arise from the more general way that, for years now these firms have ceased to actually use meter readers, and the bizarre use of constantly updated estimates of future usage so as to set direct debit payments, rather than simply paying for what you use, as you use it. I simply don’t understand the bills I receive any more. Added to all that is the perennial problem of call centres you can’t get through to, or get cut off from, or which say they will call back and don’t. And added to that is the new reality of everything being done online, the chatbots, the inexplicable rules and all the rest of the hideous inconvenience of the most mundane of transactions that are now the norm.
And then what about choice of tariffs? I, like almost everyone transferred, ended up on the standard or ‘deemed’ tariff i.e. the maximum price allowed under the cap. So are people who never changed tariff or did so under a time-limited deal that has now ended, or who move house are also on the standard tariff. There may be a few options to find a cheaper alternative, but they are extremely limited, and the illusion of choice that I wrote about in 2013 has now entirely disappeared. With it, there has gone the last vestige of pretence that this is a market in any meaningful sense of the term.
Indeed this whole saga shows how, as with many other core goods and services, it is politically impossible simply to ‘leave it to the market’. Even if not very effectively, the government and the regulator is under pressure to, at the very least, ensure that the lights stay on. Yet at the same time, since the industry remains privatized, consumers are ultimately paying for the dividends and bloated salaries, as well as the malign effects of financialization.
Restoring the UK industry to common ownership wouldn’t solve the many complex environmental and geo-political problems facing the production, distribution and consumption of energy, but it would at least end the farce and failure of the pretence that there is a market for consumers. There’s already been something like a de facto re-nationalisation of railways (£), and it’s well overdue for something similar to happen to the energy industry.
