I was quite nonplussed to see the Chancellor of the Exchequer wanting "reassurance that energy companies are not using the short-term wholesale price fluctuations as an excuse to push up prices, when most have long-term energy contracts" ("Darling seeks UK energy price talks", 7 January). In a functioning market, the price will be set at the level that balances supply and demand, irrespective of the actual costs of supply. Sellers will not sell below their cost of production, and the price will be set by the highest price of all the suppliers required to provide for the corresponding demand. Suggesting that energy companies could sell at their average cost of supply rather than at marginal market prices indicates one of two things: either the much-lauded UK energy market is actually not functioning properly, because of bad design or poor regulation, or the Chancellor is ignorant of basic rules of economics. It is inconceivable that he may be thinking that the public is ignorant of such rules and that he can get away with such blatant politicking. it is quite ironic, after twenty years of deregulation and claims that "the markets will provide", to see senior politicians panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels. In any case, after 20 years of the UK lecturing continental Europe that it was silly to have an "energy policy" because "the market provides", it is quite ironic that anyone in the UK would complain about having exactly what was desired: ie a market-driven industry, including the rush to produce gas as quickly as possible (driving prices down, and now up as reserves are depleted) and the parallel rush to build gas-fired power plants (profitable when gas was cheap and plentiful, but creating a huge and durable supply requirement exactly as gas runs out). The piecemeal sale of the industry after its breakup, mostly to foreign utilities then widely mocked for overpaying by caring more about size than profitability, has created the desired competition but now makes it extremely difficult to define and apply any long term policy, and the lack of coherence in investment now has very real consequences on prices and security of supply. But it's so much easier to blame the other Europeans, especially those that warned precisely that this would happen.
In a functioning market, the price will be set at the level that balances supply and demand, irrespective of the actual costs of supply. Sellers will not sell below their cost of production, and the price will be set by the highest price of all the suppliers required to provide for the corresponding demand. Suggesting that energy companies could sell at their average cost of supply rather than at marginal market prices indicates one of two things: either the much-lauded UK energy market is actually not functioning properly, because of bad design or poor regulation, or the Chancellor is ignorant of basic rules of economics. It is inconceivable that he may be thinking that the public is ignorant of such rules and that he can get away with such blatant politicking.
it is quite ironic, after twenty years of deregulation and claims that "the markets will provide", to see senior politicians panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels.
In any case, after 20 years of the UK lecturing continental Europe that it was silly to have an "energy policy" because "the market provides", it is quite ironic that anyone in the UK would complain about having exactly what was desired: ie a market-driven industry, including the rush to produce gas as quickly as possible (driving prices down, and now up as reserves are depleted) and the parallel rush to build gas-fired power plants (profitable when gas was cheap and plentiful, but creating a huge and durable supply requirement exactly as gas runs out). The piecemeal sale of the industry after its breakup, mostly to foreign utilities then widely mocked for overpaying by caring more about size than profitability, has created the desired competition but now makes it extremely difficult to define and apply any long term policy, and the lack of coherence in investment now has very real consequences on prices and security of supply.
But it's so much easier to blame the other Europeans, especially those that warned precisely that this would happen.
Can't suggest an alternative myself; as I don't read the FT I don't know the house style. keep to the Fen Causeway
It is quite ironic, after twenty years of deregulation and claims that "the markets will provide", to see senior politicians panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels. In any case, after 20 years of the UK lecturing continental Europe that it was silly to have an "energy policy" because "the market provides", it is quite ironic that anyone in the UK would complain about having exactly what was desired: ie a market-driven industry,
In any case, after 20 years of the UK lecturing continental Europe that it was silly to have an "energy policy" because "the market provides", it is quite ironic that anyone in the UK would complain about having exactly what was desired: ie a market-driven industry,
The first lines of these two paragraphs are the same. I think you should merge them:
In any case, after twenty years of the UK lecturing continental Europe about deregulation and claiming that it was silly to have an "energy policy" because "the market provides", how anyone in the UK government could complain about having exactly what was desired: ie a market-driven industry? It is quite ironic to see senior politicians panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels.
Your central point seems to be the irony of British ministers complaining that their "market" solution is doing precisely what it is mean to do, i.e. raising prices as demand exceeds supply - and now advocating the sort of market distorting measures they have been lambasting the "Europeans" for for the past 20 years.
I don't think you will get away with saying much more - certainly not the economics lesson in pricing, although it may be worth saying all of this is the natural consequence of the privatisation of utilities and the rapid and wasteful depletion of reserves.
It's a pity, but LTEs don't tend not to be the place for detailed argument - unless you are a famous economist or can claim to speaking on behalf of a well known and influential body. Index of Frank's Diaries
I was quite nonplussed to see the Chancellor of the Exchequer wanting "reassurance that energy companies are not using the short-term wholesale price fluctuations as an excuse to push up prices, when most have long-term energy contracts" ("Darling seeks UK energy price talks", 7 January). Market prices are set at the level that balances supply and demand, irrespective of the actual costs of supply. Suggesting that energy companies could sell at their average cost of supply rather than at marginal market prices indicates one of two things: either the much-lauded UK energy market is actually not functioning properly, because of bad design or poor regulation, or the Chancellor is ignorant of the basic rules of economics. It is inconceivable that he may be thinking that the public is ignorant of such rules and that he can get away with such blatant politicking. After twenty years of lectures on the irrelevance of "energy policy" compared to market solutions, it's surprising to hear British complaints about the market-driven industry the UK has done so much to bring about. More sadly predictable, however, is that senior politicians should panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels.
Market prices are set at the level that balances supply and demand, irrespective of the actual costs of supply. Suggesting that energy companies could sell at their average cost of supply rather than at marginal market prices indicates one of two things: either the much-lauded UK energy market is actually not functioning properly, because of bad design or poor regulation, or the Chancellor is ignorant of the basic rules of economics. It is inconceivable that he may be thinking that the public is ignorant of such rules and that he can get away with such blatant politicking.
After twenty years of lectures on the irrelevance of "energy policy" compared to market solutions, it's surprising to hear British complaints about the market-driven industry the UK has done so much to bring about. More sadly predictable, however, is that senior politicians should panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels.
I would suggest that others give it a try too (especially Frank's - it's funny enough that it might be published!) In the long run, we're all dead. John Maynard Keynes
