Average Household Energy Bill, C4 News

Energy bills – what happened to the missing 23 percent?

Today’s announcement that Labour will freeze household energy bills if they win the next election has the energy companies up in arms.

So how is television news reporting it? Are they presenting the facts accurately and impartially, as broadcasting regulations demand? Or are they presenting them in a way that makes one side appear more reasonable than the other?

Take Channel 4 News for example. They come over as being more down-to-earth, edgy and left-of-field than the BBC or Sky. If anyone is going to speak truth to the power companies it would be them. So how did they do?

Below is a rough-and-ready transcript of this evening’s Channel 4 News coverage of the disagreement between Labour and the Energy Companies, with my own thoughts as the debate unfolded inset in blue.

KRISHNAN GURU-MURTHY: It’s a big gamble. Ed Miliband says that if Labour wins the 2015 election it will freeze energy bills until 2017. Perhaps predictably, the energy companies, who also face being broken up by Labour, are united in criticism of the move.

>>> Why ‘perhaps predictably’? Starting the sentence with just ‘The energy companies’ would have been more impartial.  ‘Predictably’ would have been too obviously biased. But ‘Perhaps predictably’ leaves it open to question, suggesting Krishnan is as far on Labour’s side as he’s allowed to get. So we can be sure that if anybody will be asking the hard questions, it’s going to be Krishnan.

Business Correspondent, Siobhan Kennedy, is in the studio to help setup the the debate.

KRISHNAN: So how will Labour do it?

SIOBHAN: Labour says that the energy firms should be able to absorb the freeze because of the massive profits they’ve made in recent years. They certainly hope it will be popular with voters, but it wasn’t popular, of course, with the energy companies themselves today. [] One said it would mean that there won’t be any investment now in new power stations and infrastructure. Another said it would lead to unsustainable loss-making retail businesses.

KRISHNAN: Ah, but they’re making huge profits. So how do they explain that?

>>> Way to go Krishnan! He’s obviously warming up for the fight. Speaking truth to power. That’s what journalism is all about. If Krishnan doesn’t put the energy companies on the spot, nobody can.

SIOBHAN: Well here’s how they justify it.

CUE ANIMATED GRAPHIC showing the constituents of the average household energy bill.

Average Household Energy Bill, C4 News
Constituents of Average Household Energy Bill, C4 News

SIOBHAN: Energy firms say that only half of those costs in the bill are for the energy itself while about 20% is made up of network costs – the costs of distributing energy (sic) and gas around the network.

But 10% and rising of costs in bills is made up of investment the government mandates these energy firms make to roll-out new green technologies like wind and solar, and also to invest in urgently needed new power stations.

So the point the energy firms are making is:” Fine Mr Miliband, freeze our bills, but the wholesale and network costs will continue to rise.

So all it will mean over the long term is that we can no longer make the investment you require us to make in green energy, which will bring bills down in the long term, and equally it could lead, in the worst case scenario, to blackouts because we won’t have built the new power stations that are required to meet increasing demand.

KRISHNAN: Well, so, should we believe their numbers? Are they right?.

SIOBHAN: Well, if you look at this it does appear to make sense.

>>> WHAAAAAT? This is where I lost it. Take a closer look at those numbers. They don’t add up. 47 + 20 + 10 = 77. What happened to the missing 23 percent? That’s nearly a quarter. What happened to that?

OK, so 5% of it is could be VAT, but they don’t say if VAT is included or not. Only giving us half of the figures isn’t clarifying the picture, it’s confusing it.

Now, Krishnan and Siobhan aren’t dummies. Siobhan is a graduate of the University of Essex and winner of the British Venture Capital Association‘s award for best national newspaper journalist. And Krishnan studied PPE (Philosophy, Politics and Economics) at Oxford, the same Alma Mater as David Cameron, Ed Miliband, William Hague Ed Balls, Danny Alexander, Lord Mandelson, Robert Peston, Evan Davis, Nick Robinson and David Dimbleby, to name but a few. So, if nothing else, they know how to add up.

So how come they think the numbers make sense? A whole quarter of the average household energy bill unaccounted for and neither Siobhan nor Krishnan objects!

Am I going crazy? Have I lost the ability to add up? What am I missing? What is it that Krishnan and Siobhan get that I don’t?

Now I’m listening a lot more carefully. The first thing I’d want to be asking the energy companies is, what happened to the missing 23%. So will they?

SIOBHAN: But you could also argue that these are extremely profitable companies and that, in the freeze period, if you like, they could pull in profits from somewhere else to keep that investment up,” says Siobhan.

>>> Yes. You could also argue that, if you like.

SIOBHAN: There was another suggestion today that you could put the investment required onto general taxation. You could take it out of bills altogether.

>>> Yes, you could do that, but it was only a suggestion.

SIOBHAN: But there does appear, Krish, to be a slight contradiction here. That on the one hand Mr Miliband is saying let’s freeze these energy bills, and on the other he’s saying, at the same time, I’m going to stick to key climate change targets for 2030. But those require massive investment itself by the energy companies. So how he is making the two add up is not clear.

>>> Ah! Now I get it. So the energy companies’ figures add up, but Labour’s don’t. That’s typical of politicians. They’ll say anything to win an election. But the moment they set foot in Downing Street they do a Clegg!

But hang on a minute. The only figures we’ve seen so far that don’t add up are the energy companies’, not Labour’s. So why is Siobhan saying it’s the other way round, and why isn’t Krishnan putting her straight? This can’t be deliberate, surely? That would be neither accurate nor impartial, which would bring Ofcom crashing down on their heads. So I’m guessing the reason Krishnan isn’t mentioning the missing 23% now is because he’s keeping his best shot for last.

In the studio, the Chief Executive of Energy UK, Angela Knight, puts the energy companies’ case first:

ANGELA KNIGHT: Well I think that clearly what you need to do is to look at those figures that were just up a moment ago – which shows that actually a very small amount, interestingly, of your energy bill – something less than 20% – is actually within the control of the energy company. And that is the 20% which they use to run the power stations, to employ the people.

>>> Right. This is what Krishnan has been waiting for. Now he’s going to say: What the figures actually show, Angela, is that 23% of the bill is unaccounted for. But he doesn’t!!! He just sits there and lets her carry on!

ANGELA KNIGHT: A large proportion of the bill actually comes from factors that are outside their control. And so if one is looking at what the future looks like when you have actually frozen the prices, then the answer is that you’re going to get some adverse consequences.

>>> At long last Krishnan interrupts. Now he’ll ask about the missing 23 percent.

But no! Instead he gets tetchy about energy company profits in a way that’s easy for Angela to dismiss.

KRISHNAN: So you won’t cut your profit margin. Your members will still take their profits and they will cut investments in renewables?

ANGELA KNIGHT: I think there’s actually a completely wrong story about profits. The profits that the companies make is about 5%. That is considerably less than most industries.

>>> Why do I get the feeling I’ve seen Angela somewhere before? Perhaps it’s just her tone? How would you describe it? Like a cross between Margaret Thatcher and the Queen? Authoritative, patronising, condescending even? Ah yes. I’ve got it. Matronly, as in: “Now do as you’re told and take your medicine. You won’t like it, but I’m telling you it’s good for you.”

KRISHNAN: But there is an argument about the opacity of the wholesale market, that some of your companies are making money from that, and so this idea that you only take a tiny little margin is a bit of a con. And because you won’t be utterly transparent about energy prices, we don’t know.

>>> At last we get to hear the “C” word. But it’s only an argument rather than a fact. And the energy companies aren’t actively hiding anything, they’re just not being utterly transparent. So it’s only a bit of a con, not a monstrous huge one smacking is right in the face.

ANGELA KNIGHT: They make all those numbers available to Ofgem the regulator who then puts it out on the website, so you can see what the six largest energy company makes (sic).

>>> So that’s the end of that then. You can’t get more transparent than putting the figures on the Ofgem website. But what kind of figures do they make available? The kind we’ve just been looking at, that leave a quarter of the money unaccounted for? Is that what Krishnan was hinting at when he talked about “an argument” that they aren’t being “utterly transparent“? Is this as far as he dares go?

It seems so, because it’s now time to “balance” the debate with an argument from the other side.

KRISHNAN: But just to be absolutely clear about the consequences, to put to Caroline Flint. You are saying you will not be able to deliver the renewables obligations and the targets if they go ahead with this,?

>>> Call it my over-active imagination, but there’s something about the way Krishnan jerks his thumb over his shoulder in the direction of the screen behind him that reminds me of a teacher in a headmistress’s study talking about some troublemaker standing outside in the corridor waiting for a good thrashing.

ANGELA KNIGHT: It certainly looks to us that if you’re going to freeze what can be charged, then it’s going to impact somewhere badly. And what the companies are saying at the moment is that will impact investment. And what we need in this country is more investment in energy…

>>> That makes sense. It’s just like the banks. If banks can’t make big profits they can’t invest and the economy dries up. Same thing with energy. If energy companies can’t make big profits the energy supply will dry up. So we have to bail them out just like the banks.

But – hang on a minute! Now I’m starting to remember where I’ve seen Angela Knight before. Wasn’t she the spokesperson for the banking industry when they crashed the economy and pushed us into austerity?

OK. Stay with us for a moment.” says Krishnan, swinging round in his chair to face the big screen, where Shadow Energy Secretary, Caroline Flint, has been standing outside in the dark in Brighton waiting to get a word in.

KRISHNAN: This is politically popular but not actually very sensible, is the argument.

CAROLINE FLINT: Look. With all due respect to Angela, I don’t think I’m going to take any lectures from her. A few years ago Angela was representing the big banks and said they didn’t do anything to cause the global financial crisis – and defended Libor – and today she’s defending the big energy companies.

>>> Ah Ha! Now we’re talking!

CAROLINE FLINT: The truth is our figures are based on information provided to Ofgem from the Big Six. They show to us that actually wholesale prices – which makes up more than half the bills that we receive on our doormat – in 2009 wholesale prices for electricity dropped by 45%. Customers only saw a 5% reduction in their bill, and it’s been out of kilter ever since.

So the freeze is about stabilizing the situation until we get our reforms in to tackle a dysfunctional energy market that isn’t competitive enough, isn’t transparent enough and really has left the public at a loss as to how these companies operate – and lost their trust at the same time.

>>> Now that makes a lot more sense. Who profits most from dealing in energy company shares and speculating on energy prices? The banks of course. If they were manipulating Libor then why not the energy market? They’re even using the same spokesperson!

Now the rabbit is out of the hat I’m expecting Krishnan to wheel round swiftly while the trail is hot and put Angela on the spot.

So  does he? Not on your life! Instead, he starts badgering Caroline to answer the false premise he and Siobhan set up at the beginning: that Labour’s figures don’t add up but the energy companies’ do. Reinforcing the impression that politicians will say anything just to win an election.

KRISHNAN: But, will your legislation force them to take the money out of their profits rather than out of investment in renewables? Because if they just cut their investments in the future you’ve cut your nose off to spite your face, or to win an election.

Caroline explains that over half the investments on renewables come from other sources and have nothing to do with the Big Six. And that generating companies will get a fixed return on electricity supplied to make sure they get they get the investment they need for new power stations.

But that’s not good enough for Krish.”You’re not answering the question,” he says in a kind of exasperated tone he hasn’t shown Alison Knight.

Caroline insists she has answered the question but repeats what she’s said once again.

>>> In contrast to what we expect from politicians these days, Caroline did actually answer the question. The trouble is that once a bell has been rung, it can’t be unrung. We know from Krishnan’s perhaps predictably at the beginning that, if he’s on anyone’s side, it isn’t the energy companies.

So when he says Caroline is evading the issue we tend to believe him more than we might your average Mail or Telegraph journalist. And when Caroline reveals that electricity companies make huge profits by generating electricity which they sell to themselves and then sell again to us, instead of it being one of those Eureka moments when the case is cracked, it disappears without a trace.

“Alright,” says Krishnan, interrupting in a kind of dismissive tone that suggests Caroline still hasn’t answered the question.

“Just answer that,” he says, wheeling round to Angela Knight.

“Which part?” says Angela, throwing up her hands in an echo of Krishnan’s earlier exasperation.:

“I mean, the reality is that there have been an awful lot of allegations there made, not many of them are correct. The reality that what we are facing is an industry which is investing huge sums of money, and if they are going to invest the money that we need, in whatever form of energy, then you do have to make a profit. And the question that we need to ask ourselves is not whether you should take one bit, or try and distort the market another way, or say you don’t like a particular company. We should look at the whole of the energy issue and discuss it with people so they understand and we all are able to have that proper, clear, open and honest discussion.”

Out in the dark in Brighton, Caroline obviously had a lot more to add to Angela’s ‘proper, clear, open and honest discussion’, but Angela had used up all the time, so she had the first word and the last.

All of which set me thinking…

For those interested in finding out more about possible connections between energy market manipulation and the banks, these are as good a place to start as any:

Barclays’ $453m fine for US energy market-rigging upheld, BBC News, 17 July 2013

JPMorgan investigated by DoJ over possible energy market manipulation, The Telegraph, 19 Aug 2013

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