Yes, my energy company makes a profit. So what?

Time for a more objective debate.

Last week the Labour Party released figures highlighting that the major energy companies collectively had made increased profit levels from their generation and supply businesses since the last general election.  This theme is one that requires an objective public debate as the UK faces up to the energy challenges that lie ahead.

I understand that some people, many of whom may be Labour Party members, believe that utilities – like the company I lead – should never have been privatised and so any level of profit is unacceptable.  That’s a perfectly legitimate view to hold, but it is not the policy of any leading political party.  For as long as energy companies are privatised and shareholder-owned companies we are required to pay our shareholders a return on their investment.

That being so, surely the real question – if I may be so bold – is: what level of profit is reasonable for a publically listed energy company to make? Clearly we provide a vital service and so we cannot make unfettered profits.  But we have been very clear for some time now that in domestic energy supply we target a profit margin that averages just five per cent over the medium term.  Recent polling suggests that most people think that is a reasonable amount to make. Indeed, it’s a smaller margin than most food retailers and in recent years our Energy Supply business has made less than that. The overall profits might seem high, but they come from almost ten million customer accounts.

Labour looked beyond supply and also examined the generation side of our businesses.  It’s true that profit margins here can be higher but they are absolutely necessary to support inherently riskier, more complex investments like power stations. And why do we need that investment? To deliver on the energy policy commitments of this government and the ones before it.

For years now energy policy has been aimed at decarbonising the UK’s energy system. The Climate Change Act of 2008, supported across the political spectrum, requires slashing carbon emissions by 80 per cent on 1990 levels by 2050. To do this without drastic changes to all of our lifestyles, most of the burden of this will fall on the electricity generation sector, where highly polluting power stations will have to close and be replaced with more expensive, low-carbon alternatives. I don’t disagree with this aim – quite the opposite – but politicians, the media and indeed the general public must all confront the fact that these policies come with a price tag.

Once you bring in necessary upgrades in the regulated transportation infrastructure, oft-quoted government estimates put the amount of private sector investment needed by 2020 at as much as £110bn. Whatever the final sum, it will require an awful lot of investment decisions to be made. And if each individual investment does not stand alone economically, it cannot be undertaken. Therefore the sheer increase in volumes of this investment will mean that, even if profit margins per investment are not increasing, the absolute level of profit will have to increase. It is a simple fact of economics.

Where the profit then goes is also critical. At SSE we are proud to invest only in the UK and Ireland, and we use the British supply chain where we can too, such as the £500m we put into it when developing our Greater Gabbard wind farm off the Suffolk coast. As a UK-listed company we pay tax on our profits here in the UK (£369m last year), we employ around 20,000 people across the UK and Ireland – many in remote areas where such jobs are invaluable to the local economy – and we also invest in R&D, skills, training and apprenticeships.  

I accept we have a unique role in the UK society and with that privilege comes responsibility. I have also been around long enough to know that Labour’s focus on the big energy companies is a fact of political life in a functioning democracy, but this over-simplification of profits failed to take account of how this profit underpins vital investment and services that help the country to function.  I am not pretending SSE or other companies are perfect, but that must not stop us from having a genuine debate around the future of energy in the UK and how we are going to pay for it through proper economic investment.

For customers, higher group profits will clearly be difficult to reconcile with the increases they have seen in prices in recent years. But this debate is too important to be reduced to just prices versus profits. For all the investment we make, we estimate that only 15 per cent of a typical bill is within our direct control. It’s time for government, opposition and industry alike to have an open, objective conversation about how to meet the challenges ahead of us while protecting customers from rising costs.
 

Photograph: Getty Images

Alistair Phillips-Davies is Chief Executive of SSE plc

Qusai Al Shidi/Flickr
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I can’t follow Marie Kondo's advice – even an empty Wotsits packet “sparks joy” in me

I thought I’d give her loopy, OCD theories a go, but when I held up an empty Wotsits bag I was suffused with so many happy memories of the time we’d spent together that I couldn’t bear to throw it away.

I have been brooding lately on the Japanese tidying freak Marie Kondo. (I forgot her name so I typed “Japanese tidying freak” into Google, and it was a great help.) The “Japanese” bit is excusable in this context, and explains a bit, as I gather Japan is more on the case with the whole “being tidy” thing than Britain, but still.

Apart from telling us that we need to take an enormous amount of care, to the point where we perform origami when we fold our underpants, which is pretty much where she lost me, she advises us to throw away anything that does not, when you hold it, “spark joy”. Perhaps I have too much joy in my life. I thought I’d give her loopy, OCD theories a go, but when I held up an empty Wotsits bag I was suffused with so many happy memories of the time we’d spent together that I couldn’t bear to throw it away.

After a while I gave up on this because I was getting a bit too happy with all the memories, so then I thought to myself, about her: “This is someone who isn’t getting laid enough,” and then I decided that was a crude and ungallant thought, and besides, who am I to wag the finger? At least if she invites someone to her bedroom no one is going to run screaming from it, as they would if I invited anyone to my boudoir. (Etym: from the French “bouder”, to sulk. How very apt in my case.) Marie Kondo – should bizarre circumstance ever conspire to bring her to the threshold – would run screaming from the Hovel before she’d even alighted the stairs from the front door.

I contemplate my bedroom. As I write, the cleaning lady is in it. To say that I have to spend half an hour cleaning out empty Wotsits packets, and indeed wotnot, before I let her in there should give you some idea of how shameful it has got. And even then I have to pay her to do so.

A girlfriend who used to be referred to often in these pages, though I think the term should be a rather less flippant one than “girlfriend”, managed to get round my natural messiness problem by inventing a game called “keep or chuck”.

She even made up a theme song for it, to the tune from the old Spiderman TV show. She would show me some object, which was not really rubbish, but usually a book (it may not surprise you to learn that it is the piles of books that cause most of the clutter here), and say, “Keep or chuck?” in the manner of a high-speed game show host. At one point I vacillated and so she then pointed at herself and said, “Keep or chuck?” I got the message.

These days the chances of a woman getting into the bedroom are remote. For one thing, you can’t just walk down the street and whistle for one much as one would hail a cab, although my daughter is often baffled by my ability to attract females, and suspects I have some kind of “mind ray”. Well, if I ever did it’s on the blink now, and not only that – right now, I’m not even particularly bothered that it’s on the blink. Because, for another thing, I would frankly not care to inflict myself upon anyone else at the moment.

It was all a bit of a giggle eight years ago, when I was wheeled out of the family home and left to my own devices. Of course, when I say “a bit of a giggle”, I mean “terrifying and miserable”, but I had rather fewer miles on the clock than I do now, and a man can, I think, get away with a little bit more scampish behaviour, and entertain a few more illusions about the future and his own plausibility as a character, when he is squarely in his mid-forties than when he is approaching, at speed, his middle fifties.

Death has rather a lot to do with it, I suppose. I had not actually seen, or touched, a dead body until I saw, and touched, my own father’s a few weeks ago. That’s what turns an abstract into a concrete reality. You finally put that to one side and gird up your loins – and then bloody David Bowie snuffs it, and you find yourself watching the videos for “Blackstar” and “Lazarus” over and over again, and reach the inescapable conclusion that death is not only incredibly unpleasant, it is also remorseless and very much nearer than you think.

And would you, dear reader, want to be involved with anyone who kept thinking along those lines? I mean, even if he learned how to fold his undercrackers into an upright cylinder, like a napkin at a fancy restaurant, before putting them in his drawer? When he doesn’t even have a drawer?

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war