However, politics doesn’t beat any politics. A blunt price ceiling has the virtue of simplicity. It’s easy to understand, it knocks a few percentage points off the short-term rate of inflation (which will save several billion quid in index-linked public debt payments) and it might save businesses from being slaughtered in the hospitality sector, for example. The downsides, apart from increasing public borrowing, are also clear. Big financial support will be given to households that could easily afford Ofgem’s upcoming theoretical price cap in October, which would give a typical annual bill of £3,549. As a result, incentives to reduce energy consumption are weakened, which in the first place increases the risk of power outages. But some version of a price cap is now in place in many European countries with heavy exposure to natural gas. As we are constantly told, and rightly so, there is no easy answer. But one hopes that the Truss administration, or rather the civil servants, have the operational details nailed down. Retail energy supply companies are, in effect, seen as the delivery mechanism for a massive government intervention in the markets. One can see at least two major challenges. First: if the industry’s proposal for a giant “deficit fund” with accompanying loans is rejected, then cash must flow to suppliers very quickly before they can continue buying energy. Without government guarantees, immediate liquidity support or both, the sector would collapse within a week, says independent energy analyst Peter Atherton. Second: if the government subsidizes the wholesale price of natural gas, it must ensure that energy is still effectively purchased through conventional hedging contracts. As it stands, the state could end up taking over some rotten and inefficient business models in a sector where more than 30 companies have already failed. If it were starting from scratch, the government would probably create a central purchasing mechanism – but that’s hard to do on the hoof. Establishing a price cap is just the first basic step, in other words. But the effect is to turn the entire retail energy industry into something approaching semi-nationalized status overnight. The details of how the policy will work on the ground will be critical.
The stench of the sewage scandal just keeps getting worse
Let’s be clear: Jonson Cox, who stepped down in June as chairman of Ofwat after a decade in office, did not say on Tuesday that water companies lied, withheld information and gave regulators grief for years about vexed issue of sewage disposal. But a listener to his evidence to a House of Lords select committee could be forgiven for thinking that’s what he meant. Cox was asked about the joint investigation launched last November by Ofwat and the Environment Agency into waste water treatment plants – an investigation launched by water companies who admitted they could be releasing sewage into rivers and waterways beyond permissible levels. Six companies have been served with formal notices for enforcement purposes. The interesting detail is that the investigation arose out of concerns in regulatory circles as far back as 2015. Ofwat, Cox explained, funded the introduction of new monitoring equipment at the time. “So you might ask: why did this data suddenly become available in 2021?” Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. Answering his own question, he replied: “You can imagine that I have spent a lot of time thinking about it. I can’t avoid the conclusion that – it wasn’t quite a complaint – but it was put on the table as it became very clear that the release of these monitors was going to show very significant non-compliance with the regulations and relevant permits at the sewage treatment works.” OK, so the next question is whether the companies knew their facilities were violating discharge limits before the equipment told them. On that score, Cox responded, “Companies didn’t necessarily need these screens to know something was wrong. And I have to come back to this point: where does the legal obligation to fulfill a license lie? He sits with the company. So the companies didn’t know anything about it? I don’t find it credible.” The regulatory investigation is ongoing. But the stench of a major scandal grows every time someone – in this case, the dude who was supposed to police the industry – lifts the lid a little.
