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Monday, November 11, 2013

Reaping the whirlwind

I have no brief for the energy companies. Indeed, it is my view that they are acting as an oligopoly and in doing so making huge profits at our expense. There needs to be some accountability but the threat posed by Labour that they will freeze prices risks an all-out war with the companies.

That this is a possibility is highlighted by this article in the Independent, which reports that Fund managers controlling billions of pounds invested in UK energy companies have warned that they are considering pulling out of the sector because of political interference in the market.

The paper says that the threat of political intervention has hit the share prices of the Big Six, and raised questions about future profitability. They add that speculation has angered some of the country’s leading institutional investors, who have said privately that they will act if the meddling continues.

Another fund manager, James Smith of Premier Asset Management, said: “We run a couple of funds that have exposure to utilities across the world, including the UK where shares have fallen in recent weeks. We are considering whether things are going to get worse because if they do we might need to reassess our strategy relating to our UK investments.

“It’s right to talk about affordability but it must be done in the right way. We can’t view utilities as charities – you won’t find many private companies out there that aren’t looking to charge the most they can on whatever product they make or supply. It is right for regulators to ensure that the market is operating in a competitive manner. The alternative to the status quo – nationalisation – would be unlikely to reduce prices.”

The regulator has made a start in seeking to simplify the market, but they have not gone far enough. Equally, the rather heavy-handed approach of the Labour Party threatens to disrupt infrastructure investment, lead to an exodus of capital and cause even more price rises in the run-up to the election.

I am not in favour of letting the energy companies hold us to ransom but neither should we let them threaten us into inaction. We need to introduce some genuine competition into the market, shift green taxes so that they are raised in a more progressive way and discourage excessive profits by taxing them.
Would nationalization reduce the cost of energy ? Why has the UK allowed itself to have no buffer against supply monopolies?
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