Mallen Baker's Blog

E.On's 'Ratner' moment

11 Sep 2008

The energy companies are treading a fine line at the moment, with price rises leading to high profits, whilst poorer people struggle to pay bills and face a harsh winter. So it's just what you need at such a moment to have one of your executives in the UK making a joke to a Parliamentary committee that a hard winter would mean "more profits for us".

Gerald Ratner would recognise the moment. When he made a passing joke, as he had numerous times before, about some of his products being 'total crap' he discovered just how fragile a business empire can be to a few badly chosen words. Ratner's comment was less offensive, and less significant. But because he bore the name of his business and he was the CEO it was the end of him.

As far as the gaffe went, at least the E.On did what it had to do quickly - it apologised unreservedly. It's all it could have done, but it didn't prevent the rash of 'callous company' stories that followed.

The fact is that, beyond the populism, there is a real issue here. When does a company make excessive profits? For some, it's whenever they make a good profit - but those people tend to be anti-corporate anyway.

But arguably it is when prices are hurting people for essential utilities and you are making profits because you can. If the energy sector was genuinely competitive, like the retail sector, you would see companies being loud and visible in reducing prices to the lowest they could, and finding basic package deals that would be good for the poorer consumers. Because that way, they would benefit in the marketplace.

The energy marketplace doesn't work that way. Switching providers is a pain, and very few people do it. The tariffs are confusing, and people don't understand the price signals and none of the companies seem much committed to defining themselves as the 'Wal-Mart' discounter of their industry.

Last month, E.On increased its profit forecast for this year because of higher power prices and higher generation capacity. In most circumstances that would be unreservedly good. In the current situation, you have to ask whether anyone is paying attention to the 'licence to operate' that society grants to businesses who are operating in an essential capacity.

Mark Owen-Lloyd's words hurt the industry because it became evidence before an increasingly angry public that their suspicions that they are being ripped off by profit-grabbing bosses who couldn't care two hoots for their hardship are correct. The industry will not survive such popular sentiment if it grows, whatever it subsequently gives back as a gesture in the face of fuel poverty.

The energy industry should remember this. You have made excessive profits when society decides you have made excessive profits. Don't expect the definition to be rational, consistent with history, or kind. There is a fine line being trod here - one that got just a little finer this week.

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