As 
energy takes an increasingly central stage in the pre general election tussle Ed Miliband has dusted off Labour energy price freeze, sort of.
Having been caught out by the simple economics of a market not listening to political policy that undermined his 2013 price freeze promise, Miliband struck a chasten figure on all things energy, when the wholesale markets began their falls through to January this year, Miliband’s big idea looked even more questionable. The response? Simply repackage it as a price cap. The difference was though that no one was listening this time.
For a couple of months Miliband decided as the energy market was taking care of prices itself and costs were falling, he’d focus instead on the water market. Sadly that didn’t arouse emotion either.
And so it was back to energy.
This time Miliband came prepared. Whether it was true or not, the script was set.
The Competition and Markets Authority may only be 6 months in to its 18 month investigation and may only have just released its interim findings, but Miliband has already committed to over-ruling the commission’s findings if it doesn’t say what he wants. That is for the Big 6 energy suppliers to be broken up (despite evidence of anti-competitive behaviour having not been found).
Miliband’s second move was to abolish Ofgem the weak link in the energy market as identified by the CMA’s initial report.
Miliband’s third move?
To force through cuts in energy prices. Not a freeze, not a cap, but centralised price setting by a Labour government.
Miliband said:
“The cost of energy to the big six firms fell by 20 per cent. Your gas bill fell by between one and five per cent. Your electricity bill probably hasn’t fallen at all. What better evidence do we need of the chronic over-charging, the broken market and the rip offs being faced by millions of families and businesses across Britain?”
Wow.
First point: the cost of energy didn’t only fall for the Big 6, it fell for all energy suppliers, energy is traded in a liquid market, it could be more transparent, it isn’t perfect, but a market it is.
Second point: The cost of the actual wholesale gas & electricity makes up less than 50% of the overall price paid for energy. The rest is, yes you’ve guessed it, government levies and taxes as well as much needed network upkeep that fared so badly for investment under previous government administrations.
Third point: energy customers would face very scary prices indeed if the energy suppliers bought their energy in the market on the day it was used, the volatility of pricing would see prices constantly changing and more than likely trading at a higher level – after all as everyone knows, buy a flight the day before and it will be a lot more expensive than buying it a year in advance. The energy market is far more complex but the basic principle remains.
Fourth point: energy suppliers have already dropped domestic prices by on average 5%. Business energy prices change daily, indeed electricity does so half hourly.
So less than 50% is the cost that has fallen, that has fallen by 20%, not all energy is bought at the same time so the filter through of price falls is not instantaneous, and prices are already down 5% (and more in the business market).
So where does Ed’s extra 10% cut come from?
That doesn’t appear to matter with a Miliband aide claiming:
“Prices will be cut by Christmas”
But how will this latest plan work?
Miliband claims he will provide new powers to Ofgem to cut energy prices. That is Ofgem, the regulator Miliband has committed to abolishing on entering government.
Righto Ed. Great plan.
But Shadow Energy Secretary Caroline Flint defended her leader and his energy policy adventures saying:
“If prices had been frozen at the time of Ed Miliband’s speech (in 2013), bills today would be cheaper. But we always have 101 reasons from the energy companies and those in the sector about why they can’t pass on wholesale costs.”
Nice try Caroline but let’s look at the reality…..
- 2013, October, Ed Miliband calls for price freeze.
- 2013, October, Electricity prices for Summer 2015 were £51.55 per MWH and for Winter 2015 £57.45 per MWH
- 2015, March, Electricity prices for Summer 2015 are £42.10 per MWH and £46.05 per MWH.
No it wouldn’t have been cheaper if you’d have frozen in 2013 would it? Maybe you’ll have better luck with gas?
- 2013, October, Gas prices for Summer 2015 were 60.65p per therm and for Winter 2015 66.75p per therm.
- Today? 44.375p/therm and 50.075p/therm.
I don’t know where you’re looking Caroline but it sure isn’t at the energy market.
But then reality doesn’t seem to be a matter of much principle for Miliband’s Labour, with Ed himself saying:
“It’s been 18 months since I announced the next Labour government would freeze energy bills – so they can only go down and not up – until 2017 while we reset this broken market.”
Hold on Ed, you’ve already told us that prices have fallen, just not enough, and now you tell us they’ve gone up! Make up your mind.
Unsurprisingly Miliband’s latest (dangerous) folly was seized on by his opponents including Conservative Energy Minister Mathew Hancock who said:
“This is now the sixth version of a chaotic Labour energy policy that would have put up … bills. Its record at setting prices has been a disaster. And only Ed Miliband could propose giving a new power to a regulator he plans to scrap.”
Whilst Secretary of State for Energy and Climate Change Ed Davey said:
“Labour’s proposed regulations, involving wholesale-retail price links, would produce yo-yo pricing and higher pricing”
But Miliband still countered:
“In those months [since the price freeze announcement] we first heard loud protests from the big six energy firms and their PR guys in the government. Then we saw prices continue to rocket upwards, unchecked by the government.
“Now something else is happening. The costs of energy are tumbling down, not because of anything the government or the big six energy firms have done, but because of global changes in oil and gas supply.”
If we’re going to take something positive out of things, at least over the intervening 18 months Miliband has learnt the energy market is just that and global too and that he, nor anyone else, can possibly ‘freeze’ it.
Small mercies. Maybe 18 months into a new labour government he’ll become acquainted with reality? You’ll forgive us for not looking forward to finding out.