Alf Young: Power must be used to end abuses

Rampant profiteering offers more threat to the stability of society than any fantasy of looming socialism, writes Alf Young

The battle lines are drawn as government and corporate interests fight for control of energy prices. Picture: PA

THE Daily Mail’s editor, Paul Dacre, doesn’t do interviews. His underlings are his cover for that. When Mr Dacre does give voice, it’s through his paper’s editorials. And as soon as Ed Miliband announced, in Brighton, Labour’s plan for an energy price freeze, if it wins the 2015 general election, it was clear Mr Dacre was on the warpath.

“Day one after Ed Miliband hoists the red flag over his party conference – and the nation has a chilling foretaste of life in his Socialist New Jerusalem,” the next morning’s Mail editorial hyper-ventilated. There was more in similar vein. Mr Miliband stood accused of “antediluvian, statist thinking so characteristic of that miserable decade, the 1970s”. His plan was “pure schoolboy Marxism, betraying gross ignorance of how the real world operates.”

Sign up to our Opinion newsletter

Sign up to our Opinion newsletter

Clearly the idea of doing last Saturday’s follow-up hatchet job on the Labour leader’s father, Ralph – the man Mr Dacre claims “hated Britain” – was already brewing. But, for once, a party leader refused to bow down before someone who sees himself as the only authentic voice of middle Britain. Would that Gordon Brown, who sadly succumbed to Mr Dacre’s flattery, had done the same.

Mr Dacre knows Mr Miliband is on to something. Indeed that initial editorial acknowledged the Labour leader had struck “a popular chord by attacking the energy giants”. But much of the rest of it – you can find it all online – lazily recycled threats of power cuts and slashed investment from some of the Big Six suppliers. A parallel – a deeply flawed parallel, as it happens – was even drawn with the power black-outs in California in 2000 and 2001.

I don’t know whether Scotland’s energy minister, Fergus Ewing, is an avid Daily Mail leader. But, on Thursday, in the Scottish Parliament, Mr Ewing sounded as if someone had slipped that Mail editorial into his briefing pack when he, too, railed against Mr Miliband for floating an idea which had “received such widespread, utter and total condemnation as being completely unworkable.”

Unworkable? As the Scottish energy minister was speaking, one of the Big Six, EDF Energy was launching its “longest fixed tariff for your home”, a dual-fuel deal, fixed until the end of March 2017 And one of the smaller players, First Utility, has promised to keep its variable tariff unchanged till next March.

And, as for learning lessons from the lights going out in California at the start of the millennium, neither the Daily Mail nor Fergus Ewing has bothered to understand the sequence of events that caused chaos there. Yes, a state government retail price cap had a part to play. But the real villain of that crisis was a company, long gone, whose name lives on in the annals of global corporate infamy. A corporation called Enron.

A Republican governor deregulated the Californian electricity supply industry in the mid-1990s. Great swathes of generating capacity were forcibly sold off to a new breed of unregulated wholesale suppliers, notably Texas-based Enron. The incumbent utilities were left to distribute power to customers, under a state-imposed price cap. But the prices the wholesale privateers could charge faced no such controls. The market would sort things out.

However Enron ruthlessly gamed that market, freezing capacity investment, faking maintenance shut-downs and diverting power out-of-state to create shortages to push the wholesale price as high as it could at times of peak demand. It had the established state utilities, faced with their own supply price cap, over a barrel. One was bankrupted. Another teetered on the brink.

Enron CEO Kenneth Lay didn’t care. As he put it at the time: “In the final analysis it doesn’t matter what you crazy people in California do, because I got smart guys who can always figure out how to make money”. When the whole sordid saga was exposed, Mr Lay died before they could put him in jail. But as one senior state official put it, a very painful, lesson had been learned.

“Electricity is really different from everything else. It cannot be stored, it cannot be seen and we cannot do without it, which makes opportunities to take advantage of a deregulated market endless. It is a public good that must be protected from private abuse,” said David Freeman, chair of the California Power Authority, in evidence to a senate committee in 2002.

Thankfully there’s no Enron rampaging round the UK energy market. But as the new chief executive of SSE has acknowledged on the Perth-based group’s web site, “we need to talk about profit”. We do. We also need to talk about the consequences of the consolidation of the industry across these islands post-privatisation, into six big vertically-integrated businesses.

I know SSE is struggling to make any profit at all on its supply business. I’m one of its nine and a half million customers. I’ve just had my latest bill and I note that 50 per cent of my electricity bill covers the cost of buying the electricity we use. Another 25 per cent covers the cost of delivering it to our homes. SSE has big stakes in both generating power and distributing it. So struggling to make 3 per cent profit on supply is just one part of a much bigger profit story.

Even the Daily Mail, right up to the eve of Paul Dacre’s attack on Ed Miliband, was saying as much. On 10 August it was warning gas and electricity bills could rise by £140 before winter, despite the big energy companies making “a £3.3 billion windfall in profits since the election”. On 20 September, it was pointing out “households are now spending almost twice as much on gas and electricity as they were in 2000”.

Even in its editorial attacking the Labour leader, the Mail claims to have led the way in highlighting the sectors “sharp practices” and calls for “proper competition enforced by a regulator with teeth”. So what was it about Ed Miliband’s call for a temporary energy price cap while an incoming Labour government “reset the market”, that led Mr Dacre to conclude that, while the Mail stands fore-square behind hard-pressed consumers, Mr Miliband is rushing leftwards?

This isn’t, as the Prime Minister tried to suggest, a binary battle between Mr Miliband, the business basher, and Mr Cameron, the business backer. There is no such thing as a free market. As the Cambridge academic Ha-Joon Chang has pointed out in 23 Things They Don’t Tell You About Capitalism, “every market has some rules and boundaries that restrict freedom of choice”.

How free a market is, in the end, a political definition. And all governments need the power to address market abuses and the ability question excessive profiteering, aggressive tax avoidance and overly indulgent reward systems. You don’t need to be a Marxist academic to understand that. After all we have been through, big business has to realise that, after Enron and Lehman Brothers, after RBS and Lloyds, the bigger threat by far to our way of life is unbridled corporate power and greed, not a bit more state activism in support of hard-pressed citizens.