Energy Inversion

Like many people I’ve just received my gas and electricity bills. Unlike many, I can actually afford to pay them. My little terraced house is actually pretty easy to keep warm, even in the very cold weather we’ve had recently. I’m helped in that by the next door neighbours, who seem to have their heating on all the time thus warming one side of the house for me. I do occasionally put a few logs in the fireplace and treat myself to the comfort of the resulting blaze, but that’s not really necessary to keep warm, just me being a bit  bourgeois.

Coincidentally, the Independent recently ran an interesting article about fuel poverty and the inflated profits being made by the energy utilities in the United Kingdom.  The two are obviously connected, and it seems quite clear to me that the primary mechanism by which the public are being exploited is through the infamous ratchet. When wholesale fuel prices go up the regulator Ofgen allows the utilities to increase their retail energy prices accordingly. When the wholesale price comes down again, the retail price remains high and Ofgen does nothing. Next time wholesale prices rise, retail prices go up again, and so on. Prices to customers increase monotonically, with the inevitable result that the poor get squeezed and the companies’ profit spiral upwards.

There’s talk of the regulator getting tougher with the bastards companies concerned, but there’s been talk of that for ages. Nothing of any consequence ever happens. Meanwhile, vulnerable people, especially the elderly poor, die in the cold. It’s yet another sickening example of  the grossly distorted priorities of the world we live in.

I don’t claim to have an answer to all forms of capitalist exploitation, but reading my gas bill did give me an idea to help with this particular one. In common with many customers, my gas bill (from SWALEC in my case) is constructed in two parts: “standard energy” (which is quite expensive) and “discounted energy” (which is much cheaper, little over half the cost per kiloWatt-hour of the standard tariff). The way this works is the first 1000 kWh or so one uses are charged at the standard rate, then the additional energy consumption is charged at the discount rate.

This pricing system seems pretty normal, but it suddenly struck me when I got my bill as being completely the wrong way around. If one instead were charged the discounted rate initially and the higher rate for the excess, that would (a) benefit the poor, who presumably live in smaller houses than the rich and therefore use less energy to heat them, and (b) discourage profligate energy use beyond the switch-over point. Such a pricing system would give each user an “allowance” of cheaper energy, but charge them at a higher rate if they exceed it.

Inverting the tariff system in this way would  both help the most vulnerable and provide a real incentive for heavy users of energy to increase their efficiency. No point, though, in expecting the cartel of privatised energy suppliers to do something like that off their own bat. They’re doing very nicely out of the status quo and have no reason to change it. Dead pensioners don’t have much effect on their profits.

P.S. It also occurs to me that the £200 winter fuel payment currently paid by the government would be more efficiently targetted if it were passed on directly by energy utilities in the form of free energy to its elderly customers. I’d even make the case that they should pay it out of their own profits…

3 Responses to “Energy Inversion”

  1. It might also make sense from the power generation point of view. The power stations have a basic rate of power, which is always available an input to the grid. This power output needs to be cranked up at times of high demand, so making ‘excess’ electricity more expensive might reduce peak demand.

  2. Anton Garrett Says:

    Couldn’t agree more. Ratchet system = rat shit system

  3. […] required to ensure that universities can cope with failures earlier in the system. Just look at how useless Ofgen has been at regulating energy prices, for example, another case of a flawed system impervious to a quango’s attempts to improve […]

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