Gas Bill Rip Off As We Freeze,” screamed the Express. It could only mean that Ofgem had published its monthly supply market indicator – an attempt by the regulator to examine the trend in energy companies’ margins.
Instead of welcoming the news that prices are easing and that, at last, people may face less pressure on their wallets, the industry is in the dock for not moving fast enough.
We all know the story told by the papers is a simplistic use of the report and that it is used in ways Ofgem did not intend. We know the analysis does not take into account the complexity of setting gas and power prices. In a world where companies are trying to hedge against a possible future price freeze, it is hardly surprising that many may have locked in historic prices more aggressively than in previous years.
However, equally predictable and concerning was the response from the industry. Energy UK published an “independent” report that said Ofgem has overstated profits, and it called for the analysis to be abandoned. Although Energy UK did point to another source of information (companies segmental statements), there was no mention of how forward-looking prices and margins could be assessed. As a result, each newspaper article I saw simply contained a defensive note in its last paragraph stating that Ofgem does not know what it is talking about.
My concern is not over the analysis – it may or may not be right in this case. It is more about the tone we take, where this leaves the industry in the minds of the public, and how we plot a course to recover from shockingly low levels of trust. Saying simply “it’s all not true” comes across as defensive and unreliable – people will not believe it.
For the past few years, we have seen the ping-pong of blame from politicians to companies (its all about mega-profits) and from the companies to politicians (it’s all about policy). Neither is true. The main driver behind historic price rises has not been policy costs or profits. It is linked to changing fuel prices (gas) and network charges.
We now have a golden opportunity to move the debate on to where it should be. A practical discussion about how we trade off climate, cost and security, an assessment of whether the market is competitive and how we alleviate any rising costs for the poorest in our society. We have this chance because:
• energy prices are falling, inflation is low (possibly negative) and, finally, wages may be on the rise again;
• there will soon be an election. Any new government will want to be seen to be “solving the problems” in the UK energy market and will not want an onging debate in five years’ time.
To make the most of this chance, we have to act counter-intuitively. The industry should spend more time acknowledging the concerns of consumers and offering to work with government and Ofgem to understand prices and profits better. We should ask for more, not less, analysis and accept that information and data are key to building trust.
Privately, we should be explaining to officials and to ministers that this chronic row helps neither side and offer them our full co-operation.
Perhaps, if we do this, the industry and government can move on and focus on what we all do best – providing cheaper energy, with decreasing emissions and better customer service. The big winner in this scenario will be the consumers – whose genuine and understandable concerns about living standards were the catalyst for the debate in the first place.
Jonathan runs Brearley Economics, an energy and climate change consultancy. Email jonathan.brearley@live.com