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The Stealth Renationalization Of Energy In The UK

Politics / Energy Resources Dec 22, 2013 - 10:23 AM GMT

By: Andrew_McKillop


Professor Colin Robinson, in a Dec 2013 study published by the UK Institute of Economic Affairs, argues that the energy sector in the UK has been effectively renationalized. He says the proof is that centralized energy planning is back, and this is the root cause of skyrocketing fuel and energy prices, fuel poverty, and accelerating de-industrialisation as industrialists flee the high cost of energy.

 Robinson says: “For a short period, around the turn of the millennium, the UK energy market was highly competitive, offering choice to consumers and keeping prices in check”, but since that time: “governments have reverted to centralised action, importing many of the defects of discredited Soviet-style planning”. He argues the UK now has no way out of complete state-and-corporate control and takeover in the energy sector and criticizes the rearguard proposals of both the New Labour opposition leader Ed Milliband who calls for a price freeze on energy, and former Tory prime minister Sir John Major who calls for a tax on the windfall profits of big energy corporations.

Robinson concludes these stopgaps would only treat the symptoms of a dysfunctional energy system which as he says, has shredded the neoliberal ideal of “free markets”. Simply freezing energy prices or slapping an excess profits tax on Big Energy will do less than nothing to achieve this ideal. Prices will become even more distorted, and the oligarchs controlling big energy will refuse to invest and pull out of the country. He predicts complete or near-total State control of British energy is coming.

In fact, Robinson ignores the extent of the oligarchic takeover, and what really happened in the de-nationalization and then stealth re-nationalization of the energy sector that occurred in the UK, and many other developed countries through the period of about 1980-2010. The UK like the others suffered an oligarchic takeover of “the commanding heights of the economy”, but this was willed, aided and abetted by the State.

In the UK case, the government-corporate hegemony in energy can be traced back to the “great unbundling” of Britain's electricity production and distribution sector during the Thatcher years, from the early 1980s. The process continued “to the turn of the millenium” and far beyond, but its goals are totally unlike those of postwar nationalization.

Today, neoliberal ideology and corporate profiteering vastly outweigh the former goals of public service, national self-reliance and industrial efficiency. Ever-rising energy prices, at 5 or even 10 times the CPI rate of general price rises in the economy are the ransom paid to the New Oligarchs.

Basic concerns such as energy supply-demand management and energy economic performance were substituted by the article of faith that “the market” was uniquely capable of resolving all problems, whether this concerned energy resources or their processing, transformation, distribution and utilisation. For the oligarchs, “the market” means a tilted playing field where all parts of the energy value chain are squeezed, like a lemon. Robinson's assertion that “for a few years” Britain had a real free market in energy can be doubted. He claims that for a period starting in the late-1980s, in the full flower of Mrs Thatcher's reign, there was a “short-lived liberalised energy market”, that he says lasted less than 10 years. He ignores the fact that in that exact period, and through 1985-2000 world energy prices were at extreme low levels - oil for example rarely exceeded $18 per barrel in dollars of 2013 value. This made it easy for the newly privatized energy monopolies of Britain to siphon fat profits without having to starkly gouge final consumer prices.

Pure ideology was a major enabler of the oligarchic takeover process, at least as important as it was for the Stalin-era Soviets with their Goelro electrification program, which supplied the model for the infamous five-year plans of the USSR. Under Thatcher for example, the UK coal industry was more than “unwound” - it was completely dismantled for pure political ideological reasons, later reinforced by climate ideological reasons. In recent years, the UK has become a major importer of coal, importing 69.9% of the total 64.1 million tons consumed by the UK in 2012 – showing the absurdity of closing down the British coal industry “because it was infiltrated by soviet-minded trade unions”. Conversely the UK's already majority-private oil industry, and only part-nationalized gas industry, both of which profited from decades of state investment – paid for by taxpayers - were handed over to complete private ownership, during the Thatcher and Major government years.

The result is what we have today. The lopsided and inefficient oligarchic structure, system and process in which the policy buzzword of energy sustainability has no place. This is an opaque travesty of a “free market system”, in which creating and levering energy asset values by a select group of monopolists is encouraged and enabled by “crony government”. For final consumers, apart from a few years during which North Sea gas was so abundant it was virtually “given away”, the privatization of British energy did nothing to trim energy prices. They increased regularly, but since the early 2000s what was a previous inflation trot, became a gallop.

To be sure, the UK is only “one of the crowd” in the European Union's 28 member countries, when it concerns oligarchy-friendly state energy policy and extreme high energy prices. Trumpeting free markets and competition – in an energy system run by private monopolies whose operating hallmark is to always raise prices - centralized control is the European norm. Fuel poverty and de-industrialisation intensified by extreme energy prices, are also the EU28 norm.

State-corporate joint interference in the UK energy sector today is far more pernicious because it is undeclared. It concerns both direct and indirect support from the state, and tolerance by the state, of the price-gouging and profiteering antics of what can be called the “crony corporate sector”, but the new corporate-financial energy sector is above all inefficient, being a jumbled mix-and-mingle of financial, industrial and commercial interests who often replicate and duplicate their shoddy, overpriced offerings. Oligarchic control features a market rigging alliance of banks, brokers and traders alongside financialized “traditional” energy production and distribution entities.

Previous but democratically regulated State profiteering by nationally-owned and operated energy businesses has merely been thrown open to a select group of private monopolistic “players”. The interest of these rightly named “players” and their “stakeholders” is exclusively financial performance - certainly not energy efficiency, industrial efficiency, the benefit of the consumers they exploit, or the shrill figleaf claim of “protecting the environment and climate”. British consumers, like those of other states where the same process operates have lost both ways – the state shirks its responsibilities, loses revenues from the energy sector, and resorts to income and sales tax hikes to make up for lost revenues while it turns a blind eye to the new oligarchic monopolies who operate “the system”, and themselves hike energy prices.

In the Summary to his paper, Professor Robinson argues that when government reverts to centralised planning and control of energy, reproducing “many of the defects of discredited Soviet-style planning”, it is surrendering to “the power of pressure groups including energy producers and the scientific establishment”. This fails to analyze the oligarchic takeover of energy. This is dominated by neoliberal ideology and operated by the triptych of bankers-brokers-traders for whom energy asset creation and trading are simply two more play tables in their round-the-clock casino called “financial markets”.

For the new players in energy, racking asset prices up as far as possible then imploding them in a market crash is absolutely normal and a classic way to operate. The banker-broker-trader fraternity has most recently done this to and with the European emissions trading scheme (ETS). The oligarchs blamed the rout on governments and the European Commission for blindly issuing tradable emissions allowance permits, to please and serve the oligarchs despite the rampant de-industrialisation of Europe and the intense economic recession cutting CO2 emissions without any need for “financial market plays” to inflate and then implode permit prices. 

Since the 2008 banking and finance crisis threw a spotlight on the New Oligarchs and their fatal addiction to boom-bust asset plays, ordinary citizens and public opinion have turned against these previously untouchable clowns and criminals who occupy the financial landscape. To be sure they regularly pay huge fines to regulatory agencies “without admitting wrongdoing”, but this is closing the stable after the horses have bolted.

Instead of examining the new energy oligarchy and its “modus operandi”, Robinson identifies an earlier capitalistic handicap - the problem of “classic monopolies”, notably large energy corporations who will act to rig markets, thwart energy policy and avoid energy legislation to their advantage. Classic monopolies, we can argue, can be compared with bakelite 78rpm discs versus DVDs of today, when we compare their ability to pervert and degrade the energy economy, with the stunning negative performance of the new Energy Oligarchs.

Within a very few years, at most a decade from 2005, we have witnessed the predictable results of fully “fiancializing and marketizing” the UK's energy sector, rigorously based on roll-a-dice casino capitalist plays on what are often-artificial or completely valueless “energy assets”. Collateral damage has been extensive and continues - including a wave of bankruptcies in the boom-bust renewable energy sector, extreme high energy prices, extreme volatility of energy prices, a refusal to invest in “old fashioned” productive energy assets, and the loss of public support for the policy goals of energy transition.

To be sure Robinson sees energy policy moving full circle in the sense that UK state ownership is coming back fast although it is not admitted and listed on the “political agenda”. The reasons for this becoming not a voluntary decision – but obligatory and forced – are not given attention by Robinson but feature the now-parlous and uncertain state of electricity production, transport and distribution resources in the UK, after a decade of oligarchic asset plays and profit siphoning.

Government is once again deeply involved in large scale energy projects and investment decisions – which Robinson says the State lacks the knowledge to efficiently handle. For the present crop of governments and deciders, that is absolutely certain. Their ability to run the economy, control the banking and finance sector, and restore public confidence in government is at an all-time low. Why should their handling of energy be different?

This in fact sets a major question about society and government. Previously, the State was able to run the energy sector – alongside trains, air transport, ports, much of the housing sector, education and healthcare, telephones, and many other “public interest” sectors such as weapons manufacturing and the armed forces. Government did not identify itself as a Soviet menace, a lame duck or elephant in a china store.  The State was able to earn revenues – as well as tax and spend using borrowed funds.

The major difference with today, we can suggest, is that previous to the 1980s, government was not ashamed of governing – it was the functional top-tier of working democracy. Since the 1980s, for at least the past 30 years, the “no government” meme and slogan has ruled as an elite rallying call – and in the energy sector as elsewhere we live with the anarchic and dysfunctional results as the New Oligarchs have stealthily taken total control of the economy. Their ability to manage the economy on a longterm basis – like their interest in doing so – is very low or zero.

The UK's Monty Pythonesque privatization circus act started by Mrs Thatcher 30 years ago was a confused elite rush, almost a panic to “reform” anything able to turn a quick profit for the brigade of corporate interests which yipped the neoliberal “revolution” forward.  Alongside the so-called “reforms” which began in the early 1980s, there was an apparent obligatory addition of bureaucratic talkshops called “consultative agencies”. When Nigel (now Lord) Lawson was the UK's Secretary of State for Energy, the paramount need to “liberalize and privatize” the energy sector, as well as other “commanding heights of the economy” was also a God-given opportunity to create more jobs for civil servants staffing hastily created “public interest agencies”.

UK privatisation of gas (1986) and electricity (1990), as Robinson says, did little to increase energy market competition or reduce prices because the entities operating the sector simply became private semi-monopolies, replacing public semi-monopolies. In addition, the extra layer of bureaucracy called “consumer consultative agencies” was added, and had to be paid for. With the New Oligarchs, this further increased the number of parasitic layers and overall dysfunctionality of the energy cake.

The early Thatcher “revolution” can be defended by some, including Professor Robinson as at leadt attempting to create “competitive free markets” but its present latter-day and extreme version operates to “nationalize the losses and privatize the profits” of Too Big To Fail banking, finance and corporate energy “players”, requiring permanent State control of the economy. This underlines the fatal convergence of  neoliberal market capitalism and State capitalism acting towards one single goal: create and operate monopolies. Whenever major financial-economic crises break out, in our case since 2008, this realworld fact becomes starkly evident.

Robinson particularly identifies Britain's nuclear power sector as a case of permanent State interference and State aid, as in other nuclear-friendly countries such as France, and says that the recent UK government decision to hand over the construction of “new build” nuclear power plants in Somerset (SW England) to France's State-controlled EDF, for extreme-high guaranteed electricity tariffs, is an example of blatant centralization with highly negative implications for average electricity consumers. The pretexts offered by the UK government, apart from “fighting” global warming, and because deindustrialised Britain is so industrially weak it cannot dirty its fingernails building power plants, feature the constantly repeated slogan of “national energy security”.

Robinson dismisses this figleaf claim. Whatever substance the “energy security” argument may have had for nuclear power – Britain like France and all other nuclear power-using EU28 nations imports about 97% of the uranium fuel it uses – the building and operation of these “new build” plants by a foreign State-owned corporation reduces the energy security figleaf to transparent invisibility! The EDF reactor deal shows the full-blown “seamless” union of crony government and crony corporate energy – EDF in this case – to rack Britain's electricity consumers for as much as can be sucked out of them. Denying this is difficult.

To be sure, the process of “corporate nationalization” and effective monopoly control by private interests of the energy sector calls for massive disinformation and the befuddling of public opinion. The Thatcher years in the UK were accompanied by the creation of pompously named “consultative entities” including the Office of Electricity Regulation (OFFER) for electricity and the Office of Gas Supply (OFGAS) for gas, later merged as the Office of Gas and Electricity Markets (Ofgem) in 2000. This gem of crypto-bureaucratic window dressing, behind which the privatized monopolies lurk, still exists today. In the early days of Ofgem, in the late 1990s, the UK's electricity and gas networks were regulated and treated as so-called “natural monopolies”. That is, the State sold out and handed over its previous monopoly to new entirely private monopolists intent only on maximizing their profits – by raising energy prices, reducing service quality and paring “unproductive” investment, that is any heavy and “old fashioned” industrial investment, to the minimum.

The EU28 of today has fully-embraced these windowdressing entities for pseudo consumer-dialog. European versions of today such as ACER, CEER, ENTSO-E and ENTSO-G generate a permanent smokescreen of talk behind which the private monopolies, cartels and financial conglomerates carry on their process of transforming the energy sector into a “tradable asset” circus.

Robinson looks at the history of energy privatization in the UK – more simply “energy financialisation” – as a series of centralizing reforms with occasional “symbolic gestures” towards creating a free market. For him, one symbolic event came in 1998 when UK domestic consumers of both gas and electricity were given the freedom (not available in other EU countries at the time) to “switch suppliers” whenever they wanted – if they preferred one semi-monopolistic energy producer of overpriced energy, rather than another, upstream of the commercial cartels operating energy distribution, downstream!

Whatever the extent to which the British public was befuddled by ideological propaganda, however, energy prices were set to rise vastly more than the cost of living index (CPI) for the next 15 years.

Through the game of customer base shuffling, the monopolistic energy suppliers identify the most profitable “market segments” and design strategies for sucking more from these prime segments. At the same time, they work out how to extort more from the low-profit customer tribe, in a classic uber-capitalistic exploitation process. In the UK and other “late stage liberal democracies” crony government is onside in this quest, nodding through each additional hike of energy prices, to keep profits rolling in and corporate “stakeholder satisfaction” as high as possible. To be sure, the propaganda and disinformation accompanying the process claims that energy prices must always rise for “energy security, protecting the environment and fighting global warming”, but for the average UK energy consumer of today, these figleaf claims have worn very thin.

Professor Robinson does note that the UK's enduring love affair with the Friendly Atom resulted, in the Thatcher government years as in the following New Labour government years, in the UK's early and now antique Magnox nuclear power stations being fully recognized as unsaleable to any “new market player”. They were kept in state hands. One of these antique Magnox plants, Wylfa in Anglesey, is still in operation, still in public hands and still receiving State subsidies. Nuclear power was instantly recognized by the oligarchic “new players” as a no-no failed gimmick unable to generate big profits, not a go-go profit centre for these rightly named players. Nuclear power therefore stayed public, clearly identifying the new role – of “basket case defender” - for the State.

In the UK, gas production and distribution were effectively denationalised from the 1960s when private companies discovered large reserves of natural gas in the southern North Sea and were permitted to exploit it, but with a “profit split” between government and the private sector. This was through what is called “monopsonic rights” for government buyers of gas – in other words precedence and preference for gas-buying by those parts of the UK gas system which remained in public hands. Various studies and analyses of UK partial privatization (or denationalization) of the gas industry show that the State lost huge amounts of revenue by its early action to “split the profits” with private industry.

Elsewhere in the world oil and gas industry we can note, governments ensure they have a large slice of hydrocarbon revenues, for example in Norway, which is rarely accused of being “Soviet minded”.

Robinson claims in his study the UK's old policy of centralised energy planning, mainly directed at the electricity industry has been “reborn”. Coal is of course out of favour (due to now fading Global Warming hysteria and Thatcher-era hysteria about “communist trade unions”), but the State-willed and -promoted programme of generation from ‘new renewables’, especially wind, solar and biomass is under way, with its obligatory asset creation and destruction circus act as the energy trading, banker-broker-trader clique siphons all the profit it can get.

As a direct result, this policy and program can only be very expensive, and inefficient in energy-economic terms. Its potential for simply collapsing is high. To stave of this embarassing but natural result and wherever needed,  the UK government provides the rightly named “players” who operate the business with massive cash handouts. The most glaring present examples of this concern offshore wind and Britain's Nuclear Renaissance swansong, shredding any tattered remains of the “free market” image, which in all previous utilisation from the Thatcher years onward, was only at best a tawdry and shrill slogan.

Robinson provides some attention to a really glaring result, in the UK as elsewhere, of phony liberal “reforms” creating new monopolies only dedicated to gouging profit, using energy as the “underlying asset” for their profiteering.  This can be called the blowback from so-called ‘simplification and rationalization” of energy tariffs. Fuel poverty and de-industrialization are, inevitably, the direct results of price-gouging in the energy sector by government-shielded private monopolies. Also inevitable, government must subsidise the energy prices paid firstly by energy-intensive industrial users to protect them from the raw effects of “rational market pricing”, operated by the privatized monopolies.

Attacking the monopolists who gouge prices is of course off the menu in the “liberal democracies” because that would be “Soviet style” meddling. Energy prices are therefore permitted (we can say encouraged) by government to be racked up at 5 or even 10 times the annual rate of CPI price growth – and then energy subsidies are handed out by the same governments! It is hard to imagine anything more hypocritical or less efficient.

Robinson asks in his paper “Why did the liberalised energy market (in the UK) last for such a short period?”, and comes to the conventional conclusion that by “liberal market principles” government now intervenes through a bargaining process with powerful corporate and private interests. Due to weak government, and strong monopolies, the latter win, and Robinson does admit that in this context dictated by ideology and refusal to govern, market liberalization “is always likely to be a temporary phenomenon”. For the UK, he dates this as at most 10 years, from about 1986 to 1996.

What he calls “perverse feedback” from re-regulating the energy sector, as other sectors of the economy, is the process where the “large incumbents” or early dominant market players are happy to be regulated because re-regulation raises potential rivals’ costs and restricts their market entry, sealing the effective new monopoly power of the “first movers”. The capitalist principle of “squatters rights” or “first-entry gains” for the corporate-financial winners from pseudo privatization is well shown by the UK's history of energy market “reform”. In turn, this also illustrates the fatal flaw of “Austrian School” preaching, as recognized by some “Austrians” such as Murray Rothbard – the larger the market the more it tends to be manipulated, and not the opposite.

In the case of UK and European energy, paying for the damage wreaked by this “anarcho-capitalist model” of sectoral organization, or disorganization, will be a long and painful story.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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