Huge profits are being made in the electricity business - but is this in the national interest?

| 18th January 2018
Electricity pylon

The six electricity companies delivering energy to homes and businesses are making huge profits. 

Shareholders in the six companies responsible for distributing electricity to homes and businesses across Britain are enjoying vast profits, according to a new Energy and Climate Intelligence Unit report. But this is driving up household bills. TOM PASHBY asks, is there a better alternative?

Why, when the cost of living is driving working families below the poverty line and into the tattered state welfare system, are we not taking action on this siphoning off of public money into the pockets of billionaires and corporations?

A report published by the Energy and Climate Intelligence Unit this week revealed that the six companies operating the electricity distribution network are paying their shareholders vast profits while adding pressure to household bills. New government regulations from Ofgem have failed to drive necessary investment in the electricity grid to make it fit for the future.

The electricity distribution network – the wires and substations delivering electricity to homes and businesses – is a natural monopoly, and so companies operating the network are able to work to relatively high profit margins.

These companies have their revenues regulated by government - ostensibly in order to keep them operating with a public service ethos - but that hasn’t stopped them paying out huge dividends to their shareholders. According to the report, network distribution costs form the second largest segment of domestic energy bills - accounting for 27 percent.

Lack of plans

Ofgem did impose a new set of regulations - ‘RIIO’ - which many were hoping would bring down profits and payouts to more reasonable levels. I’m sure that even some of the most ardent neoliberals would see that it would be wildly unpopular to simply hand over public assets to the profit motive without any kind of caveats.

This has failed, with profits shifting marginally from 32 percent to 30.4 percent over the course of the new regulations being brought in and giving an average payout dividend ratio of 13.3 percent.

Aside from arguments about profit and public goods, Theresa May, the prime minister, has just launched the Tories’ 25 Year Environment Plan, attempting to rebrand the party - which has been driven by pro-austerity, pro-privatisation ideologues - into a more compassionate party which cares about the environment.

The plan does include some excellent ideas, some of which had already started to be adopted voluntarily by the private sector, such as cardboard straws rather than plastic ones in some pub chains. Yet, even the BBC has been decrying the lack of plans for legislation.

With the electricity distribution network vital to national security and run using what has historically been publicly owned infrastructure, it is right that the government has a significant hand in steering the direction of the industries involved in profiting from it.

Deliver electricity

Since the Tories were left to play on their own after the 2015 General Election - waving goodbye to the more environmentally concerned Liberal Democrats - they have been actively pushing back on policies to promote sustainable energy.

By blocking the development of onshore wind farms which are one of the cheapest forms of electricity generation, and attempting to force fracking on local communities, the Government has clearly been more concerned about a small section of their voter base going to UKIP, rather than acting in the interests of the people and planet.

If the May government really did care about the environment and tackling climate change, and wanted to support the country in moving towards a future powered by renewables, they’d take a serious look at our electricity grid.

The grid is currently tilted in favour of massive centralized power generation, like coal-fired and nuclear power stations. Everyone from off-grid hippies to liberal green Tories would benefit from the development of a ‘smart grid’.

If we took the grid back into public hands rather than leave it with 6 companies, doing their own things with various fragments of the grid, which was designed to deliver electricity to households generated by a small number of massive coal-fired power stations, rather than a diverse network of green energy sources, we could fundamentally restructure it into being a climate resilient network. This would drive down costs and help bring in more renewable generation as well as create space for energy storage.

Experiment of neoliberalism

While the government consistently mishandles firms in control of our public assets like the railways - letting them keep profits in good times, and bailing them out with taxpayer money in bad times, and like construction work on infrastructure vital for the functioning of the state carried out by the now liquidated Carillion - it’s important that they step up and reassess what is in the national interest.

This clearly raises the question of why we continue to allow public assets and taxpayers money to both give companies the means of production and go on to pay private shareholders profits which are propped up by household bills.

Why, when the cost of living is driving working families below the poverty line and into the tattered state welfare system, are we not taking action on this siphoning off of public money into the pockets of billionaires and corporations?

A huge majority of Britons would like to see institutions like the railways being brought back into public hands, so perhaps it’s time at last to recognise the experiment of neoliberalism for what it is.

This Author

Tom Pashby is a Communications Assistant at EIT Climate-KIC and an elected member of the Green party executive. Tom is writing in a personal capacity. They tweet at @TomPashby.