Erm... Martin Kelly on the gas regulator's approval of price rises.
But most other companies don't have a government regulator telling them whether they are allowed to put their prices up. Most companies would have put their prices up sooner: as high, in fact, as the market would bear. Yes, there is commercial risk but losing money is not a company's raison d'etre...
One had always thought that those operating businesses for profit did so willingly, in the full knowledge that the endeavour involved an element of financial risk. Gas distribution must be the exception that proves the rule.
But most other companies don't have a government regulator telling them whether they are allowed to put their prices up. Most companies would have put their prices up sooner: as high, in fact, as the market would bear. Yes, there is commercial risk but losing money is not a company's raison d'etre...
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6 Blogger Comments:
Fine, let's abolish Ofgem and see how many of the utilities -
A. Last a day on their own two feet
B. Survicve the revolution with their headquarters intact.
Scottish Power has its HQ behind a moat for a reason, you know...
Erm...I actually came here to read the ritual evisceration of Polly Toynbee, after she went to work on the Chancellor's thrusting document in Comment is Free.
markets really are simple, regulators exist to mederate them. All is well here...except the government has increased taxes on exploration so all our Utilities have invested in Russian fields instead so now our domestic supplies are 'running out' and we are forced to pay the international rate and be at the mercy of EU/Russian politics.
Martin,
Surely Ofgem job is to regulate the market because energy is not the kind of thing that consumers have much choice in. Thus, suppliers of energy would be in a monopolistic position.
So, Ofgem effectively exists to keep prices down for consumers, whilst ensuring that the prices are not so low that the suppliers go bust.
Isn't that what they are doing here?
DK
DK,
What you outline is precisely HOW it should work - however that does not appear to be what's happened, to my eyes at least.
The reason given for the rise is that they've overspent their own budgets (bad financial planning) and their increased pension costs (bad investment strategies). Their pension costs are rising? Sack the pension fund managers; making sure there's enough in the kitty for the final salary wallahs is their job.
Nobody please jump in with the Pavlovian 'but Gordon Brown increased taxation on pension funds and he's a very bad man and we'll all go to bed without supper' malarkey - yes, he's an avaricious exemplar of all that is bad in government and worse in socialism. Yes, he's little more than a common thief, for sure - but spread the blame where it's due.
The Tories never, really take enough flak for instituting contribution holidays, in the hope that a Footsie drifting ever upwards would bring the jam tomorrow. The roots of this crisis go much farther back than anyone is willing to admit.
Why should the customers of companies turning half-billion annual profits without these rises be forced to subsidise their bad financial planning and bad investment strategies? These are not entrepeneurial ventures, but use assets which politicians elected to sell. Did the men who run them found them? No. Where is the British energy suppliers' Branson? Their Trump? Their Buffett?
You're dead right, there is not really much competition in supply - they have us by the goolies as firmly as any government ever could.
And such rulings as these tighten their grip.
Cityunslicker,
I would be delighted to read an objective economic study which clearly states that increased exploration taxes made prospecting within our territory So uneconomical that the poor, benighted energy suppliers just HAD to go cap in hand to the Russkies. In nearly 20 years since the Conservatives engaged in the greatest act of handling stolen goods before the advent of Roman Abramovich I cannot ever recall hearing or reading of any energy supplier not paying its executives very well indeed; far better than when they were still civil servants at the Gas Board.
Well said, Martin.
The other point that I don't think DK makes clear is that we're *not* talking about Centrica etc raising their prices because of rising gas costs from Russia, which is obviously necessary - we're talking about the people who run the pipes charging more for the privilege of running gas through the pipes than they said they would, because they're inept.
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