PROFITS BEFORE PEOPLE

The news that the ‘Big Six’ energy cartel members are set to double their profit margins over the next year (and this is according to estimates by the regulator, Ofgem) probably won’t surprise anyone. Back in 2013, Ofgem estimated that suppliers would make an average pre-tax profit of £53 per dual fuel customer (a margin of 4%). Now, in the year ahead Ofgem expects the energy firms to make £106 per customer (increasing their margin to 8%). Naturally the cartel members have accused Ofgem of releasing inaccurate figures.

Ofgem has said that it was further evidence that the market was not working as well as it should. The big six (and the profits they make) have already been referred to the Competition and Markets Authority (CMA). Ofgem has also written to the suppliers asking why the falls in wholesale prices last winter have not resulted in lower bills for hard-pressed energy customers.

As part of the on-going struggle with the ‘Big Six’, Ofgem has also announced that electricity customers will see an average reduction of £12 a year on their bills, from April 2015. This follows plans to limit the prices that can be charged by Britain's six distribution companies, which carry power to homes and businesses. The price curbs could affect 29 million English, Scottish and Welsh energy customers. Ofgem's plans will also see the distribution companies spend £ 17 billion pounds to upgrade their networks. The distribution element makes up about 8% of a typical dual-fuel bill and is the only part controlled directly by Ofgem.

Five out of the six network companies (UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West) were ordered by Ofgem to cut their prices. So far, only Western Power Distribution had its pricing and investment plans approved by Ofgem. The new energy prices will apply for eight years, from April 2015 until 2023. Ofgem will announce a final decision on the proposals in November 2014 after carrying out a consultation.

While this may bring a crumb of comfort to hard-pressed customers, it fails to address the fundamental problem with the so-called energy free market. The ‘Big Six’ can do because they are pretty much free from any meaningful and effective regulation. Any criticisms that may periodically emanate from Westminster can be pretty much ignored as the Westminster based political parties have little appetite to reform the deeply flawed energy market and even less inclination to curb the excesses of the ‘Big Six’ energy cartel members.

Meanwhile, in Wales, Plaid has been argued the case for the establishment of a ‘not for dividend profit’ company, simular to Glas Cymru which works within our water industry. This would firmly ensure that customers come before shareholders dividends and the City of London. An all Wales ‘not for dividend profit’ energy company would mean that all the profits would be reinvested back into the energy sector in our country. This would also ensure that Welsh families, households and small and larger businesses get a good deal on their energy and our country will end up with secure sustainable energy supplies.

A WELSH NATIONAL ENERGY FIRM

Plaid Cymru Shadow Energy Minister Llyr Gruffydd has rightly called for a new Welsh energy company to break the stranglehold of the Big Six energy cartel members on the energy market. Wales needs a ‘not for dividend profit’ company, along the lines of the way Glas Cymru works within our water industry. This would firmly ensure that customers come before shareholders dividends and the City of London. An all Wales ‘not for dividend profit’ energy company  would mean that all the profits would be reinvested back into the energy sector in our country. This would ensure that Welsh families, households and small and larger businesses get a good deal on their energy and our country will end up with secure sustainable energy supplies. 

Plaid Cymru Shadow Energy Minister Llyr Gruffydd said:

“For far too long, the big six energy companies have hiked their prices when the wholesale cost of energy goes up but don’t bring it down when they reduce.

“A Welsh national energy company, an Ynni Cymru, would follow the same successful model as Glas Cymru has done in the water industry.

“This Welsh energy company would buy gas and electricity at wholesale prices and sell direct to Welsh consumers and businesses.

“The company could be set up by the government at arms-length.

“Profits made would be used for protecting consumers from volatile wholesale prices and introducing energy efficiency measures to keep costs down for families and households.

“When we see that gas price hikes were the highest in Europe in 2011, and have risen consistently, then it is clear that families have not been best served by the private energy market.

“Plaid Cymru believes that we should move towards a system where investment and long-term development take priority ahead of shareholders’ profits.

“That is why at our party conference this weekend we will be having detailed discussion about the energy industry, including how we can ensure best value for hard-pressed families and a long-term energy policy for Wales.”

SPOT THE DIFFERENCE?

Thames Water, the UK's biggest water firm, has paid no corporation tax this financial year not to mention making £145 million pounds in pre-tax profit. The company said that it had delayed paying corporation tax due to investments in its infrastructure amounting to £1billion pounds a year between 2010 and 2015. They blamed the government as ‘the government's tax system allows us to delay, not avoid, payment of tax based on how much we invest." Last year Thames Water increased bills by 6.7% last year and its revenues rose 6% to £1.8 billion pounds.

Meanwhile Dwr Cymru Welsh Water put £338 million pounds into capital projects in the past year, some £76 million pounds more than in 2012. Dwr Cymru Welsh Water has three million customers, and has kept bills to the same level in real terms as in 2001. Research by Cardiff University claims the company is worth £1billion pounds a year to the Welsh economy. Its financial results come in a different form to companies with shares on the stock market. As the company is owned by the not-for-profit company Glas Cymru means that savings or efficiencies are ploughed back into Dwr Cymru or used to keep bills as low as possible.

Glas Cymru was founded 12 years ago, and works from the premise that having a public service company, which is a monopoly, being run on the basis of profit maximisation for shareholders does not work in the customers' interest. The Glas Cymru non-profit model of ownership could work elsewhere in other businesses and industries including rail franchises and energy developments.

Research published by Cardiff Business School said that Dwr Cymru contributes £1 billion pounds to the Welsh economy every year. Basically for  every £1 spent by the company, another 56p is generated for the rest of the Welsh economy. The research also noted that the water regulator Ofwat saying that between 2009/10 and 2014/15 Dwr Cymru customers face the lowest increase in average household bills of all water and sewerage companies in England and Wales.

On top of the £338 million pounds spent on infrastructure last year, the company is already committed to spending another £650 million pounds over the next two years, which could result in jobs for around 1,000 construction workers. The company has also reported that their financial reserves amount to £1.6 billion pounds, that's a tenfold increase compared with 2001 when Dwr Cymru was taken over by Glas Cymru. Dwr Cymru's borrowing or gearing has also come down. It now stands at 63% compared with 65% last year and 93% in 2001.

BACK TO THE FUTURE

The Party of Wales leader Leanne Wood has pleaded for rail services to be returned from the private sector to the ownership of the people of Wales.

Speaking during a Plaid Cymru debate on rail in the Senedd on Wednesday, Leanne Wood argued that the Wales and Borders franchise should be transferred into the hands of a not-for-dividend company, once the current franchise ends in 2018.

Leanne Wood also wants to see the powers and budget for railway infrastructure to be devolved to Wales, as happens in Scotland.

The Plaid leader stressed that The Party of Wales had consistently opposed the privatisation of the railway network.

“We believe that major infrastructure should operate for the wider benefit of our economy and our communities, and that money which could be spent on improving these services should not be diverted into the pockets of shareholders taking minimal investment risks.

“A not-for-dividend model could be a publicly owned company, or it could be a co-op, or an independent company limited by guarantee, along the lines of Network Rail or Glas Cymru.

“Our most important aim is that the Welsh Government ensures that a model based on reinvestment of profit is what finally happens.”

Leanne Wood said that the Welsh Government should have full control of the Wales and Borders franchise and not have to rely on the agreement of the UK Government, although it would be fully consulted.

The Plaid Cymru leader highlighted the case for the powers and budget for railway infrastructure to be devolved to Wales.

“While welcoming recent infrastructure developments such as the electrification announcements from London to Swansea and the Valleys Lines, this does not make up for the fact that such developments were taking place around most of England and even from London to Glasgow up to 40 years ago.

“Wales has been left behind on the platform – at the whim of successive UK government,” Leanne Wood added.

“Self-government gives us a chance to break new ground and reject the failures of privatisation and fragmentation.

“Devolution, if grasped to its full extent, will allow us to put our rail services in the hands of the people of Wales, where they belong” declared the Plaid leader.

OUR WATER BELONGS TO US NOT SHAREHOLDERS

Powers over water resources should to be devolved to the National Assembly of Wales, the Welsh people, not shareholders, should be able to profit from the sale of Wales’ natural resources. The ‘not-for-profit’ social enterprise model instituted in Wales by Glas Cymru must not be weakened or undermined by any changes to regulations in the Con Dem’s new Water Bill which needs to face serious scrutiny before the Westminster Parliament and the National Assembly.

Water is a valuable asset in Wales and while many of the regulatory powers relating to Water in our country are in the hands of the Welsh Government. The water clauses in the Government of Wales Act 2006 actually prevent the National Assembly from taking financial advantage of our natural resources to benefit the people of Wales.

The Con Dem’s Water Bill (full text) is decidedly ideologically driven and aims to introduce more market competition into the water industry. They appear to have turned a blind eye to the fact that the largest water supplier in Wales is Glas Cymru, which is a not-for-profit company – something that could be used as a successful social enterprise and a business model elsewhere.

The last thing that we need to do is to turn the clock back in Wales by moving from a not-for-profit system which puts customers first to one in which boosting the shareholders’ dividends and profits are the main motive. Yet due to the Labour in Wales Welsh Government's inertia no one knows their plans as they have not held a consultation on the water industry or confirmed their plans on creating a single environmental body in Wales.

Meanwhile the draft Water Bill will continue to makes progress and no doubt the outcomes of private discussions between the Welsh and UK Governments will no doubt eventually emerge. To ensure full transparency there is a need for detailed well publicised debates in the Assembly about what the Welsh Government plans for the water industry in Wales.

Plaid has consistently called for the devolution of powers over water resources so that our country can tap the potential of our natural resources. We need these powers devolved so that we launch ambitious projects to generate green energy and secure the future of a sustainable economy.