Energy Companies and People Power

Ed Miliband’s announcement, at the Labour Party Conference, of a proposal to freeze energy prices is a bold move to shift the balance in economic life in favour of the consumer.

The public perception is that energy consumers have been taken for a ride, but things have changed since gas was under a country’s own control.  Then, we dug the coal out of the ground, had a local gasworks and everything was relatively neat and tidy.

Now, we have globalisation, international markets and a race towards global warming.  Shale gas, if it is to be extracted, may provide competition for the Russians, the Arabs and the rest of them who need to sell natural gas, so as to get the money to keep their own peoples happy.  Big resources companies control (and, perhaps, rig) the “market” and there is a real jungle out there.
Britons want to keep their lights on, to keep warm in winter and to keep what’s left of their industry able to operate (in particular, their computers and TV sets powered up).  Of course, we want it cheap.

In all of this, there is the question of risk.  And its balance with reward.

In the real world, life can be grim and there are winners and losers.  We have institutions, such as stock exchanges, and a parliament that sets the rules (or thinks it does so).  What is “fair” becomes a constantly changing product of an interplay of power between participants in the economy.

I was interested to read the recent Compass piece by Jules Peck, entitled: “Powered by People – who do you trust to keep the lights on”, and the comments on it posted on the website and on Facebook.  Ed Miliband’s father’s views are examined and that raises the question of whether power prices should be a matter for confrontation between “us” and “them”.

In a mutualisation situation the “us” and “them” distinction should not arise – rather, it should be a matter of “us” and “them” together against the world outside.  It then becomes a test of the adulthood of the consumer as to whether he or she is prepared to take commercial risks in the big wide world.

At present, this is not an option.  However, if consumers were to own at least part of their energy companies, they would have a better understanding of the commercial pressures and would have the effects of overcharging (if any, in the long term) mitigated for them.

The Co-op offers customers a “divi”.  Why can’t customers have a profit share in their energy suppliers?

In April 2013, I did a piece for Compass which spells out how this could be possible.  Here is an example.

In October 2012, British Gas announced that, on average, £50 of every householder’s annual gas bill was for capital investment.  So, I say, give me £50 worth of shares in British Gas.  It should be the shareholders’ job to pay for capital investment, not the customers’.  Clearly, the regulatory regime is seriously flawed if it allows the energy companies to grow on the backs of its customers in an oligopolistic market.  Ed Miliband is quite right to say that the regulations must be changed.

What would happen, if this proposal were adopted, is that customers would, over a period of time, come to own a significant stake in British Gas.  This is not re-nationalisation.  It is a partial mutualisation, without great upheaval, via the mechanism of existing company law, with customers paying for shares through their bills.

I will leave it to others to comment on the theoretical aspects of this proposal.  It can be adapted for other industries, such as water and banking.  I would only add that the new shares in British Gas ought not to be transferable other than, for example, on the decease of the customer (no more “Sids” going for a quick profit) – otherwise we end up with the same “us” and “them” situation we have now.

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