Consumers have paid too much for electricity and gas transmission and distribution

Participant · 12 Jul 2017 at 20:59

Anyone else think Ofgem's RIIO deal is a bit of a bad joke? Regulating a monopoly isn't easy and I understand National Grid etc. has to make a certain return to its shareholders, but RIIO T-1 hasn't addressed the enormous over-funding of the previous price control mechanism.

Companies get a (mostly) ex-ante allowance to maintain the health / resilience of the transmission and distribution networks, but if key assumptions change between the time that Ofgem set the allowed return on investment and present day, these companies get to keep the allowance even if they only spent £20 investing in the network.

Yes it could go the other way, and real price effects for materials etc. could have been much higher than it has been in the last 5 years, but then RIIO provides for RPI but doesn't (generally) provide for recouping over-payments if the original assumptions when forming the deal were overly generous to the transmission and distribution companies.

The next RIIO deal needs to address this and be a LOT tougher on these companies. National Grid's operating profit and allowed ROE is through the roof (let alone their uncapped potential returns) and it stinks a bit.

I'm all for encouraging private ventures to go and do better than the government could, but they're getting a really easy ride.

BBC article pertains: http://www.bbc.co.uk/news/business-40568869

Teknobry · 12 Jul 2017 at 22:40

things are changing massively, national grid is no longer the system operator, that is now a seperate company. Their monopoly is soon to be challenged as other firms will now be able to tender for work that previously was done only by them. competition is coming and that will drive down prices.

wordy · 12 Jul 2017 at 23:16

Teknobry said:
things are changing massively, national grid is no longer the system operator, that is now a seperate company. Their monopoly is soon to be challenged as other firms will now be able to tender for work that previously was done only by them. competition is coming and that will drive down prices.

Sorry mate. Prices won't go down, the various companies who take the work will just fix prices at an artificially high rate.

They won't lose money.

stewski · 12 Jul 2017 at 23:20

Teknobry said:
things are changing massively, national grid is no longer the system operator, that is now a seperate company. Their monopoly is soon to be challenged as other firms will now be able to tender for work that previously was done only by them. competition is coming and that will drive down prices.

Words almost identical to those touting privatisation when I first studied energy and power in 92

Teknobry · 12 Jul 2017 at 23:36

Ofgem set the price, not the company.
If ofgem lower the price then you either become more effecient and reduce your costs or you go out of business.

Its very conspiracy theory to think firms will price rig their quotes. regulator will hang them out to dry!

dirtychinchilla · 13 Jul 2017 at 08:57

I don't understand the mentality of try to reduce prices everywhere, at least for those who aren't living in poverty or on the edge. One massive issue in terms of energy that we have in this country is that there is absolutely no incentive for homeowners to make their homes more efficient. It costs too much and energy is too cheap for them to bother.

We have a country of poorly insulated and inefficient homes, and unless they're new builds, this is not going to improve. This is one of the major points (among very few) that I disagree with Labour on - we should not be capping energy prices.

Hagar · 13 Jul 2017 at 09:13

dirtychinchilla said:
We have a country of poorly insulated and inefficient homes, and unless they're new builds, this is not going to improve. This is one of the major points (among very few) that I disagree with Labour on - we should not be capping energy prices.

I agree, the price should provide incentives for people to use less energy (and improve their homes without obviously doing without heat and light etc). Low energy pricing is not the way to solve this. Adding heat to the environment by leakage or adding new power capacity continuously is not the way forward.

cheesyboy · 13 Jul 2017 at 09:22

dirtychinchilla said:
I don't understand the mentality of try to reduce prices everywhere, at least for those who aren't living in poverty or on the edge. One massive issue in terms of energy that we have in this country is that there is absolutely no incentive for homeowners to make their homes more efficient. It costs too much and energy is too cheap for them to bother.

We have a country of poorly insulated and inefficient homes, and unless they're new builds, this is not going to improve. This is one of the major points (among very few) that I disagree with Labour on - we should not be capping energy prices.

What's the benefit of not capping prices? Who gains?

vs

What's the benefit of capping prices? Who gains?

adolf hamster · 13 Jul 2017 at 09:45

dirtychinchilla said:
I don't understand the mentality of try to reduce prices everywhere, at least for those who aren't living in poverty or on the edge. One massive issue in terms of energy that we have in this country is that there is absolutely no incentive for homeowners to make their homes more efficient. It costs too much and energy is too cheap for them to bother.

We have a country of poorly insulated and inefficient homes, and unless they're new builds, this is not going to improve. This is one of the major points (among very few) that I disagree with Labour on - we should not be capping energy prices.

and if we raise energy prices how are people going to afford to do things like insulation etc?

i'd agree if we were talking about something like milk, where low prices are damaging the production, but somehow i don't think the energy companies are particularly cash strapped...

dirtychinchilla · 13 Jul 2017 at 11:10

cheesyboy said:
What's the benefit of not capping prices? Who gains?

vs

What's the benefit of capping prices? Who gains?

adolf hamster said:
and if we raise energy prices how are
people going to afford to do things like insulation etc?

i'd agree if we were talking about something like milk, where low prices are damaging the production, but somehow i don't think the energy companies are particularly cash strapped...

I understand both your arguments. At the end of the day, you have to be tough on people about energy because it is, currently, a finite resource. There's only so much damage we can do before we can't pull back and keep the planet running in a way that suits us.

What we really have to weigh up is not pricing, but is what's good for the environment. Higher energy prices are certainly good for the environment.

cheesyboy · 13 Jul 2017 at 11:23

dirtychinchilla said:
I understand both your arguments. At the end of the day, you have to be tough on people about energy because it is, currently, a finite resource. There's only so much damage we can do before we can't pull back and keep the planet running in a way that suits us.

What we really have to weigh up is not pricing, but is what's good for the environment. Higher energy prices are certainly good for the environment.

I'd suggest higher home energy prices, within the levels we're talking, are pretty neutral on environmental effects.

Household energy use is pretty inelastic. What are people going to do to save money with current prices that they wouldn't do if their energy bill dropped from £100/month to £90/month?

balky12 · 13 Jul 2017 at 11:45

cheesyboy said:
What are people going to do to save money with current prices that they wouldn't do if their energy bill dropped from £100/month to £90/month?

Stop mining cryptocurrency

adolf hamster · 13 Jul 2017 at 11:47

dirtychinchilla said:
I understand both your arguments. At the end of the day, you have to be tough on people about energy because it is, currently, a finite resource. There's only so much damage we can do before we can't pull back and keep the planet running in a way that suits us.

What we really have to weigh up is not pricing, but is what's good for the environment. Higher energy prices are certainly good for the environment.

it's a nice idea, but if we're talking about implementing something unpopular in order to reduce emissions from energy why not simply ignore the nimby's and build some more nuclear power?

Hagar · 13 Jul 2017 at 11:49

What should happen (which won't) is that the first x units are at standard tariff, the next x units are at a higher tariff and so on. Making the people* who use the most, pay a proportionately higher bill.

* This may also beneficially take out the miners who just burn energy to try and make money out of it.

balky12 · 13 Jul 2017 at 11:49

adolf hamster said:
it's a nice idea, but if we're talking about implementing something unpopular in order to reduce emissions from energy why not simply ignore the nimby's and build some more nuclear power?

That would mean admitting renewable energy is a failure.

adolf hamster · 13 Jul 2017 at 11:51

nkata said:
What should happen (which won't) is that the first x units are at standard tariff, the next x units are at a higher tariff and so on. Making the people* who use the most, pay a proportionately higher bill.

* This may also beneficially take out the miners who just burn energy to try and make money out of it.

isn't that how some places in europe do it? might be holland, but they have a tariff based on overall power consumption, if you're drawing sub 3kw it's a lower rate, and people have meters in their homes.

Hagar · 13 Jul 2017 at 11:52

adolf hamster said:
it's a nice idea, but if we're talking about implementing something unpopular in order to reduce emissions from energy why not simply ignore the nimby's and build some more nuclear power?

Even nuclear adds heat into the system, if not at the generation plant, certainly at the end user.

cheesyboy · 13 Jul 2017 at 11:53

balky12 said:
That would mean admitting renewable energy is a failure.

The Tories already subscribe to that - the day they got a majority they cancelled all onshore wind projects.

adolf hamster · 13 Jul 2017 at 11:55

nkata said:
Even nuclear adds heat into the system, if not at the generation plant, certainly at the end user.

do you mean heat energy? because that's not exactly a problem emission....

Hagar · 13 Jul 2017 at 11:56

adolf hamster said:
isn't that how some places in europe do it? might be holland, but they have a tariff based on overall power consumption, if you're drawing sub 3kw it's a lower rate, and people have meters in their homes.

It would be an incentive to reduce usage through insulation and turning things off. Less power demand and power generation required.

adolf hamster said:
do you mean heat energy? because that's not exactly a problem emission....

Agreed it is not a greenhouse gas, but the waste heat has to go somewhere, absorbed by land, sea, atmosphere. Therefore it does contribute to global warming.