No escape from pricy energy


There is a stark message in today's half-year results from the power giant SSE and a report on the impact for consumers of upgrading energy and water infrastructure.

Which is, that it is impossible to duck the cruel fact that these basics of life will become more expensive for as far as the eye can see.

That is because (sorry to resort to truisms) resources are becoming scarcer, relative to increasing global populations and because - many would argue - there has been too little investment in the UK in recent years in modernising the pipes and securing new sources of energy.

But SSE's figures and the NAO's analysis do not lead to a fatalistic conclusion that we should just grit our teeth and simply fork out the extra money, that there is no scope for a debate about any of this.

Because if there is a limit to our ability to stem these rising costs, we do have the ability to choose how we pay and who pays.

For the NAO, the big issue is whether the government needs to be doing more to plan ahead to limit the burden for those on lower incomes, who have suffered the sharpest squeeze on living standards in recent years.

Meanwhile the implication of SSE's results is that it cannot afford to alienate the City and investors if it is to be able to secure necessary investment in power and distribution.

That is the context for seeing its dividend increase of 3.2%, which is above RPI inflation (either 2.6% or 1.9%, depending on whether you prefer the old or new measure), and a pledge to deliver dividend rises above inflation for as far as the eye can see.

Now some may argue that it's unfair that this income for shareholders is protected at a time when SSE is putting up energy tariffs by 8.2%.

But SSE would say that the 3.2% dividend rise is the minimum it can pay to demonstrate to its owners that it is a viable business for the long term - which matters given that it is investing to improve its network and operations at a rate of £804m in just the six months, and it has net debts that rose by £450m to £7.8bn.

But that is not the whole story.

What is particularly striking is that it is SSE's regulated businesses, in transmission and distribution, where it has little discretion over pricing, which enjoyed big profit increases - whereas it made a substantial loss in the supply of energy.

It was in the red to the tune of £115.4m from retailing energy to millions of customers.

But its operating profit from electricity distribution was £232m, up 9%, while electricity transmission saw profits increase 39% to £67.6m.

And the operating profit from running a gas network was almost 13% higher at £138m.

These increases in the returns from regulated businesses beg a few questions.

Are they greater than necessary to secure necessary investment in the network? Or to put it another way, has the regulator mucked this up

Also, does SSE exploit the safe and steady profits it earns from transmission and distribution to limit tariff rises in its supply business, thus easing the pain for customers, or are these reliable long-term returns irrelevant to its retail pricing decisions?

There are two ways of looking at that question.

First, whether there is any kind of cross subsidy from distribution/transmission to supply.

The recent price hike would suggest there is not.

Second, whether SSE invests more in power generation and makes bigger long-term commitments to buy gas precisely because it has the financial muscle provided by robust infrastructure businesses.

Or to put it another way, is the energy conglomerate model of SSE, and its rivals (although they are all a bit different), a guarantor of value for money for customers or a source of obfuscation and confusion in the market?

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 243.

    "All dogs have 4 legs. My cat has 4 legs..."
    Mindless babble.

    "You can pose a Yes/No question... But be careful what blinkered conclusions you draw."
    Aren't you blinkered, admitting @234 that you and all of us are all capable of compassion without laws compelling us?

    "(BTW, you forgot to +1 yourself again. Losing it?)"
    Yet more mindless babble. "Losing it" indeed.

  • rate this

    Comment number 242.

    "Nothing for cancer research then, at least not until the hard work's done?"
    I patron certain cancer charities too.

    "But of course, research generally is just one more thing that would suffer if you had your way."
    Untrue. In fact, the overwhelming majority of research and innovation in science and medical science is done privately.

  • rate this

    Comment number 241.


    All dogs have four legs. My cat has four legs...

    You can pose a Yes/No question, and you can get an answer. But be careful what blinkered conclusions you draw.

    (BTW, you forgot to +1 yourself again. Losing it?)

  • rate this

    Comment number 240.

    I read it: you're now uncomfortable because you've arrived, @234, at a logical conclusion that conflicts with your views:

    You don't need a law for you to show compassion to the truly needy, and that you are no different from anyone else. Ergo, we do not need a parasitic army of public servants who produce nothing save poorly administer what you said you can do yourself: compassion.

  • rate this

    Comment number 239.


    No "wordsmithing". I don't agree. Read it again. Play your games if you want, but I was clear.

    "Performance is effectiveness." - Nothing for cancer research then, at least not until the hard work's done?

    But of course, research generally is just one more thing that would suffer if you had your way.

  • rate this

    Comment number 238.

    Wow, you did quite a lot of wordsmithing there to extraciate yourself from the fact that you agree with me.

    Just imagine how few people there'd be impoverished by the regulations and taxation levied on us in order to fuel that enourmous Welfare State that you agreed @234 we can do ourselves without it.

    Performance is effectiveness.

  • rate this

    Comment number 237.


    It is not a matter of showing compassion. Your criteria are too broad to cover all those you might wish to support. Some will be forgotten, not for lack of compasson, but through lack of awareness.

    As for a "huge welfare state", the alternative you propose is just as large but less universal. You have an ideological preferance, not a practical one.

    Performance? How do you mean?

  • rate this

    Comment number 236.

    If you don't need a law to show compassion to the needy, and you are no different to anyone else, why do we need a huge welfare state to administer what you admit you can do yourself, and the rest of us can: show compassion to our truly needy fellow Brits?

    I select my charities on:
    The needs of the crisis;
    Performance; and
    Political and religious neutrality.

  • rate this

    Comment number 235.

    Can you answer the repeated question, please:

    Do you, ComradeOgilvy, need a law for you to show compassion to the truly needy?

  • rate this

    Comment number 234.


    No. Nor am I special.

    How do you, Sally the Rothbardian, determine which charities you will donate to and which you won't?

  • rate this

    Comment number 233.

    I'm asking about you, specifically ComradeOgilvy:

    Do you need a law for you to show compassion to the truly needy?

    If you don't, what makes you so special from the rest of us?

  • rate this

    Comment number 232.


    OK, I see what you mean now, but I was interpreting "you" more figuratively. Playing with words won't make you right though.

    *We* in the general sense, needs laws to ensure compassion is shown to the truly needy, regardless of the marketing skills of any given charity.

  • rate this

    Comment number 231.

    Do you need a law for you to show compassion to the truly needy?

    If you don't, what makes you so special from the rest of us?

  • rate this

    Comment number 230.


    You do interprete things oddly sometimes. I did not say that.

  • rate this

    Comment number 229.

    Your admission that without a law, you're incapable of showing compassion to the truly needy, is alarming.

  • rate this

    Comment number 228.



    You know I'm in favour of responsible and compassionate government. Charity is not a suitable market-driven activity.

  • rate this

    Comment number 227.

    So you need a law to show compassion to the truly needy?

    If not, what makes you different from the majority of Britons?

  • rate this

    Comment number 226.


    I don't expect you to speculate on reasons.

    Simply consider the consequences in full of relying on altruism.

  • rate this

    Comment number 225.

    Well, I can't speculate as to why some people value certain charities over others. Perhaps the people marketing their charity for an often self-inflicted illness is difficult to do.

    For example, I donated today to the Médecins Sans Frontières PhilippineTyphoon Haiyan appeal purely as a matter of personal preference.

  • rate this

    Comment number 224.


    The wants of the rich or the needs of the poor. Of course they're focused!

    Those posts were prompted by the loss of his wife. They made the point that research suffers because lung cancer sufferers are deemed less deserving (she however didn't smoke), so were poorly funded.

    Not a fan of consoles, but fair enough if you've paid yer wedge. I'm sure you understood my meaning.


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