When Margaret Thatcher took her axe to the Gas Board in 1986, the tale that was told was that, by ending the state monopoly of gas supply, the way would be made plain for free competition between a range of rival suppliers. Customers would exercise free consumer choice, and the bracing atmosphere of free competition would incentivise suppliers to up their game, to the benefit of a grateful public.
However, it did not take long for the six largest suppliers to discover the enormous profits to be made by establishing a price-fixing cartel to monopolise the lion’s share of the market, marginalise smaller players, make hole-in-corner deals on pricing, and drive consumers’ energy bills through the roof.
So flagrantly were the Big Six suppliers ripping off the public that in 2019 the energy industry regulator Ofgem made a feeble attempt at reining in the power of the Big Six, introducing energy price caps across the board and encouraging the public to get savvy about switching from supplier to supplier, supposedly to keep the monopolists on their toes.
All that it has taken now to collapse this delicately balanced house of cards has been a global gas shortage and a corresponding spike in wholesale gas prices, ascribed variously to environmental events (Hurricane Ida blocked 77.3 percent of Gulf of Mexico gas production; there was a dip in wind power over the North Sea), a post-Covid industrial bounce-back in energy demand, and the insistence of Russia on prioritising its own domestic energy needs.
The immediate effect of this shortage has been to hasten the demise of the smaller suppliers. Five have already gone since the beginning of August and industry is telling the government to expect that out of 55 suppliers only between six and ten will last the year out. They simply cannot honour the tariff deal promised to their customers with wholesale prices at their present level.
And as one company after another sinks like a stone, customers, who only yesterday were encouraged to feel ‘empowered’ by their ability to switch seamlessly from one provider to another in pursuit of the best deal, now find themselves in powerless limbo whilst industry (ie, the Big Six monopolists) wrangles with government over their fate.
Government hopes to palm them off onto the surviving companies like some poor cousins. The monopolists don’t see things this way, however, not warming to the notion of supplying gas to someone else’s customers under the (possibly advantageous) terms previously agreed to with the failing company. They argue that each customer they absorb under Ofgem’s ‘supplier of last resort’ scheme could cost them hundreds of pounds a year.
Instead, reports the Financial Times, the “UK’s largest energy suppliers are requesting a multibillion-pound emergency support package from the government to help them survive the crisis sparked by high gas prices, including the creation of a ‘bad bank’ to absorb potentially unprofitable customers from failing rivals …
“The largest energy suppliers are asking the government for substantial support to handle potentially millions of customers from failing companies and may require the creation of a ‘Northern Rock-style bad bank’ to house customers they could not take on without losing money.”
And further: “One suggestion is for the formation of a ‘bad bank’ which would take on unprofitable customers from failed suppliers – a move reminiscent of measures taken at the peak of the financial crisis in 2008 and one designed to avoid weakening otherwise strong companies.” (UK energy groups ask for state ‘bad bank’ to weather gas crisis by David Sheppard et al, Financial Times, 20 September 2021)
So the Big Six are too big to fail, the smaller companies must go to the wall and the public purse must be raided to prop up private monopoly. Meanwhile, Ofgem announced in August that prices for 15 million households, whose bills are dictated by two energy price caps, would rise by at least 12 percent from October.
This hike will push energy bills sky high just as furlough winds up and universal credit is cut back. In one of the wealthiest countries on earth, millions of families will again be forced to choose between heating and eating this winter.
“In the UK, 4 million households were unable to afford to adequately heat their homes even before the latest energy price crisis. Some 10,000 deaths a year are linked to living in a cold home, according to the charity National Energy Action.
“The NEA said households under financial stress tend to resort to ‘desperate’ measures such as restricting their energy usage to just a few hours a day, or taking refuge in warm public spaces such as libraries or cafes.” (Energy prices hit new records as charities warn of ‘heat rationing’ by Nathalie Thomas and Tom Wilson, Financial Times, 13 September 2021)
To this bleak picture we must add the dire consequences global gas shortages are having on Britain’s food industry, with empty shelves and soaring prices predicted.
In particular, the carbon dioxide harvested from natural gas is needed for the humane stunning of livestock prior to slaughter, and is also used as an essential preservative to stretch the shelf-life of many food products as they wend their way through insanely extended global supply lines. Take carbon dioxide and plastic packaging out of the system and you undermine the whole basis upon which the global food industry depends for its profits.
CF Industries, which specialises in extracting carbon dioxide from natural gas at its sites in Billingham and Ince, has just stopped production, citing unaffordable gas prices. The CEO of the British Meat Processors Association told the BBC: “If we haven’t got the CO2 supplies, on the packaging side that reduces the shelf-life of products going on the shelves at a time when we are really struggling because of all the transport problems.
“This has come as a huge shock, it has happened so quickly. I think everyone is outraged in the industry that these fertiliser plants can shut down without any warning whatsoever and suddenly take something which is so essential to the food supply chain off-stream just like that.” (Government urged to ‘step in’ to help struggling Teesside firm after shutdown by Nick Gullon, Northern Echo, 18 September 2021)
Such is the anarchy of production, where it is the profit-driven market that crucially dictates what is to be produced, not the needs of society as a whole.