Power scam

by Yannis Varoufakis

Thatcher privatised the electricity system in the UK and introduced the idea that privatization is a good thing for the people, the idea being that the market knows better how to reduce costs than the state.

The first step was to say: how much are you paying for your electricity? You pay £50 per I don’t know how many kilowatt hours, we’re going to cap it. We’re not going to allow the price to go beyond what you’re paying. And then we’re going to privatize, and we will allow competition to bring it down.

If it brings it down, you gain, consumer. If they don’t succeed, it’s still capped at 50, so you’ve got nothing to lose. You only have things to gain.

That was a very powerful argument.

If you add to that the fact that they were giving away shares to the people who then of course sold them to the oligarchs, it was impossible to stop privatization.

The second phase was saying: “but who am I as a politician to be deciding the cap of the maximum price? Why should politicians decide? Let the market do it!”

Instead of having ministers deciding the maximum price, we’re going to simulate a market! But we can’t have a market, when it comes to electricity.

Why can’t we have a market when it comes to electricity? If there were, you know, 30, 50 different electrical cables coming into your home and you could choose which one you were going to take your electricity from, then it would be a market.

There would be some kind of competition between different providers. But, of course it would be stupid to have 50 grids going through every house and every street in every country.

So this is why they simulate the market. How do they do that?

They say: okay, we’re going to split the electricity companies in at least three parts.

The first will be power generation. So each power plant becomes a company or is owned by some company that may own more than one; and these companies compete with one another in the wholesale Market, to provide the system with a wholesale price.

The second part is the network, the grid, that belongs to another company.

And then there is the part where electricity leaves the grid to go into your home. And that’s where you create electricity providers who compete with one another in the market of buying the electricity from the grid, which has bought it from the producers, and then selling it to the consumers.

You simulate competition between the producers. They produce the wholesale price, and then you have providers who are competing with one another to allow competition to shrink the distance between the wholesale price and the retail price.

That is phase-2 privatization – and this is what is now prevailing in the European Union. They copied the Thatcherite phase-2 model.

When you simulate the market, you need to have government imposed rules simply because you don’t have a real market. You have a government, pretending, simulating a market. When it comes to a proper auction and you’ve got people selling stuff, you would expect that the company or the person offering the lowest price, wins. Right?

No! In this market, the company offering the highest price wins. And then the price is the same for everybody as long as the sum of the electricity that they have provided is no more than a certain amount, which is what the market demands.

It’s madness, and then supposedly the providers compete with one another to reduce the retail price to that maximum wholesale price.

Now, if this sounds complicated, it is because it was intended to be complicated. So that the citizens of Europe do not understand that this is a scam against them, even during the good times.

Proof of that is that since privatization, the difference between the cost of producing an average kilowatt hour and the retail price has tripled. So don’t believe anyone who tells you that “the problem has nothing to do with the system, the problem is that the cost of production is going up”.

Yes, the cost of production is going up because the price of natural gas is going up. But that does not explain why the profit margin of the firms is getting larger. Are we clear on this?

I spoke in the Greek Parliament and I exposed a scam of the Greek government. We represented in Parliament a proposal on how to shield consumers from skyrocketing prices.

What we said was this: it is crazy that, because the price of electricity produced from natural gas is skyrocketing (because the price of natural gas has skyrocketed) I think it’s crazy, crazy mad, that electricity coming out of solar panels, which costs nothing to produce, (once you have the solar panel) it is free, that the private company that is selling solar produced kilowatt hours should get for that kilowatt hour the same price that it would get had it produced it from the most expensive natural gas.

It is mad, right?

All you need to do is to eliminate these super profits. I mean: how did I understand that it’s a scam? Because they don’t tell you: “Footnote 3.8. This is where the scam is.” You’ve got to do some detective work, decipher it yourself. The first inkling we had that this is a scam is when it mentioned that the daily auction for the wholesale price continues. This Stock Exchange, in which wholesale producers are competing with one another in an auction, continues.

Now, the human mind cannot wrap itself around that.

If you have a maximum price that is imposed by government on every single Power Station, why do you need the auction? Isn’t that the obvious question to ask? Now here it is, this is what they do: remember, the price for every megawatt hour that the government imposed on hydropower plants was 85 Euros. 

I looked at what the auction yielded, the price: it was 700 during this period. 700! The price cap for those kilowatt hours produced by hydropower plants was meant to be 85. So this is how it works: the producer of that kilowatt hour, or megawatt hour receives 700 euros that has been determined by the auction in the Netherlands, but then they have to give back to the Greek State the difference between the 700 and the price cap of 112 [in Greece], which is 588.

So they give it back to the government. Okay, so far, you think it’s stupid.

I mean: why do this? Why don’t you just ask them to receive 112 instead of receiving 700 and then have to return the 588? So far, no scam, just stupidity, just bureaucracy.

Here’s where the scam comes!

The government does not take this money in order to give it to Consumers. No! The government takes this money to give it to the retail companies. Now, if you look at every market, almost, in Europe, the same shareholder that owns the producer, owns the retail company.

Ha! Got you!

So it is as if I have a company that is producing electricity, and I have a company that is a retail company. They let the pseudo auction determine the price at 700. They force me to return to the state from my left pocket, which is my pocket as a producer, 588 Euros to the government, and the government puts it in my right pocket.

Now is it any wonder that the consumer feels no relief?

No, none, zero, zilch. Then, what the government does is: okay, to help you, dear consumer, I’m going to borrow money. The government will borrow money and add it to the government budget to subsidize your electricity bill, in other words, to allow you to give the oligarch the money in my pocket that the government has taken from one pocket and put in another pocket.

Now, if this is not a scam, I do not know what the word scam means.

This is the definition of a scam.

Why are they doing this?

Because complexity is in the interest of the oligarchy. They are imposing a price cap. They are subsidizing the public. So the government is doing something? No, the government’s doing nothing.

The government are agents of the oligarchy, they are crooks and they are thieves.

This is a clear-cut case of destroying the capacity of the majority of Europeans to make ends meet, in the interest of the oligarchy, combining two things: on the one hand, the market fundamentalism of Thatcher that creates the simulated market, which has failed us, with: statism; the state, borrowing, increasing public debt, so that the state can subsidize the oligarchs, but not the consumers.

The only solution to this is the immediate abandonment of the market model, the closure of the auction house in the Netherlands, the first step before you do anything else.

We need to have a proper price cap, both at the wholesale level and at the retail level, so that the price that people pay reflects average cost plus a small percentage, a little bit of profit for whoever is running the show.

That’s number one that should be the DiEM25 policy across Europe. End market fundamentalism; end the delusion of markets: blow up markets. There can be no market when it comes to electricity, because there’s only one electricity cable coming out of your wall … and there can be no market.

When they try to create, simulate a market with one cable coming out of the wall,they are scamming society. 

Point number two: we need an Energy Union, a green Energy Union.

We can no longer sustain this fallacy of the market, which allows German government to have its own plans about the green transition. The Greek government, its own plans. Nobody is investing in green hydrogen properly. Nobody is investing in solar panels and windmills that are actually owned by communities.

They are doing everything for the oligarchs.

The second [part] of the DiEM25 policy, I think, should be a socialized green energy Union incorporating within the system, this network of green energy production and distribution with ownership rights at the municipal level, the regional level, overseen by citizens’ assemblies, by juries, randomly selected citizens and so on.

And the third thing that we must do – and I know that that sounds controversial -end sanctions on Russian energy.

The only people who benefit from the sanctions on Russian gas and oil are the Russian oligarchs and the European oligarchs. It is not helping Ukraine, it is not undermining Putin. It is enriching Putin and his oligarchs. And the sanctions are only in the interest of the United oligarchies of Russia, of Ukraine, of Germany, of Italy and of Greece.

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