Monday, 20 January 2020

HS2 - the costs get worse but what options are there?

You may expect the us here at C@W to deplore the rising costs of HS2 (hint, looking back to 2013, we have amazingly been consistent on this) as the gross workings of an excessive public sector.

The sheer rise in costs in incredible, nearly quadrupling from the initial estimates and there are some reasons why which make it so:

1) Ploughing through the home counties and London has led to a lot of legal challenges as a lot of expensive compulsory purchases of land. In China, where they doe things more cheaply, they given you an option of leaving your house or being bulldozed within it - saves on funeral costs too.

2) In a bid to be green a lot of allowances have been made not to damage the countryside. Again in many countries the simpler and cheaper option is to build up and over the forests etc on a raise trainline. It looks terrible and long term is more costly to maintain but is much cheaper to get going with.

3) With a dearth of other big contracts to do, the private companies involved have gold plated the contracts to extract as much value as they can from the Government.

Despite this, what else are the Government going to do to revitalise the North. In a less climate change affected state we could build a ton of new airports like the US and have much easier access to flying but that is not 'going to fly' with politicians today. There are no easy choices that will enable large scale upgrades and whilst extending motorways is all very well that needs to be done as well, not instead of HS2.

Additionally, electric trains can be run off a main grid so again they are long term a more sustainable form of mass transit.

All in all, it will be very disappointing if the Government cave in to lobbying and cancel this project at a time when UK borrowing costs are still near all time lows. If anything we should be pressing the button on these projects and looking to extend the service to Scotland and Northern Ireland over the next few decades.

Thursday, 16 January 2020

So long and thanks for all the fish

The end of our EU membership is upon us and the sangfroid from watching the dying embers of remoanerism try and block an EU exit celebration in London is a delightful sight to behold. This is what has become of all that money being spent on People's Vote, the marches, the Qusilings trips to Brussels - reduced to trying to stop a party in Trafalgar Square. Oh, the deep joy.

However, the Quislings like Blair are I can see now focused on trying to force a Hard Brexit. Blair has been advising Macron on the weak points politically in Brois' strategy with a view to forcing a no deal and thence re-launching their Rejoin campaing immidiately.

None of this is very subtle so no doubt Cummings has war-gamed the strategy but the outlines are clear, firstly for the EU to insist on the touchstone of fishing which they know will drive the right wing Brexiteers mad if we don't re-assert control of our fishing rights and then to complete a pincer movement with demanding full regulatorty compliance both now and in the future. Again by doing this it is barely leaving the EU.

However, I see some holes here. Firstly, regulatory compliance is actually OK as it allows for the low friction trade we want. So I am sure this will be bargained away at the last minute for a high price. The fishing is more troublesome but again there are a wealth of access compromises that can be made. The big win is ending free movement whilst retaing more or less ful access to the singel market and enabling our service setor to continue to sell into Europe.

From where the EU are starting this looks doable to me this year in outline. Of course Blair and the others will keep trying to push over Boris' red lines, but I do wonder whether in the end the EU would be crazy enough to torpedo a deal in the hope that the shock worked - they have form as they did this with Greece, but I am not sure that is an experience worht repeating.


Monday, 13 January 2020

Last rights for FlyMaybe?

It has been a long time coming, the demise of Flymaybe (indeed that has been its nickname for several years now, a nice mix of the threat of coporate collapse and poor service in one handy monicker).

Last year Virgin Atlantic stepped in for some reason lost on me and apprently has spent £100 million of Private Equity money trying to turnt he airline around. 

Alas, it seems to haev failed. For me though the heroic nature of Flybe's fall has some great angles. 

For example, it tried to corner the Hebrides business in Scotland and outcompete Logan Air. It leased expensive planes, bought landing slots and went for it. All at a massive loss. But who sat down and decided that was there world domination strategy, what next, the inter-Ireland market? 

Really, what a terribly run business by the management. Of course, the usual suspects when it comes to airline issues are alive as ever. Out of date IT which means ticketing costs more that it should and scheduling is slow so aircraft don't turnaround quick enough to generate more revenues. Plus the price of oil moving around and a weak pound sliced into margins. Finally of course, the big boys like easyjet just cherry pick the goo routes and effectively have Flymybe as a free test bed for them to see what shorthaul is working. 

Ouch, I can't see it being rescued this time and instead a period of administration and trying to be reborn with out its debt might prove the solution. 

As ever in the airline industry the saying remains true - how do you make millions in the airline business, start with billions....

Sunday, 12 January 2020

Weekend Sport: Fratricide at the Guardian

It is hardly to be marvelled at, because the Graun gives space to some pretty ludicrous stuff (hardly unique in the meejah, but still).  At the same time, they have the wonderfully waspish Marina Hyde, who can't quite believe the crap the gets commissioned alongside her own crisp commentary. 
there is a particular stripe of Labour self-indulgence that has simply redefined what it means to be an absolute shower of shits ... However mirthlessly, you do have to laugh at the various Corbyn outriders who’ve now been wrong for two elections – in most cases for three – but have not even broken stride since the biggest defeat since 1935 before turning up with some more advice for what Labour should do next. What can you say? Other than: why are you still here? Did someone order some more wrong, with a side order of obnoxiously erroneous? Because I definitely didn’t. You’ve just spent four years plugging a political Fyre festival. On the matter of where Labour should go next, I would honestly rather hear what Ja Rule has to say from here on.
(For the avoidance of doubt: Owen Jones, Paul Mason, Zoe Williams - This Means You.)

What sport.

ND  

Friday, 10 January 2020

Downfall: Small Energy Suppliers, part 2

.... continues

So several factors combined to give artificial incentives, and a leg-up, to tiny companies wanting to become energy suppliers in the UK residential sector a few years ago.  What happened next; and do we care?

What Happened Next?

The small-supplier movement started slowly, and a number of the companies that were encouraged to join the fray were, in the early days, purposeful and professional - just the kind of new entrant the authorities were hoping for.  Some of them are doing great things today, and look set to be a big part of the future of energy supply.

Unfortunately, word got around that there was a money-for-old-rope game in town and, as rapidly became evident, eye-off-the-ball Ofgem wasn't hesitating to give licences to even miniscule companies with no obvious professional capability or viable business plan.  Enter the chancers; some of whom set up several suppliers. (Their intended trick is sometimes hard to divine; but some worthless little supply companies have subsequently changed hands for [high] prices that make it virtually certain there's a scam involved).  Using the truly excellent Companies House website you can readily check up on any you come across - or, out of curiousity, from the list of those that have already gone under - and you'll find they frequently stink.  If anyone at Ofgem had been bothering, they'd have spotted this, too.

The early straw in the wind came in November 2016 when the first of the minnows, GB Energy, went bust.  A glance at their books shows there were some very costly "related party transactions" involved just before they went under (something that's been repeated in other cases), never a healthy sign.  Still, Ofgem simply reassigned their customers to another supplier (the 'Last Resort' process) - who was then able, under the rules, to charge us all any costs they incurred in taking over the stranded accounts.  GB Energy, though, was in one critical aspect not typical of much of what followed: because the steady decline in wholesale prices hadn't yet reversed.  That came a year later.

It will have occurred to many readers that the trick we noted last time, of going short into a falling market and buying in the Spot (thereby undercutting all the forward-hedgers), wouldn't work if prices started rising as, inevitably, eventually, they did.  At this point a prudent player - even one with an appetite for risk - switches strategy and starts locking in (either using the traded market, or via an OTC Power Purchase Agreement [PPA]) before prices go any higher:  "risk off", in the jargon.   That is, a prudent player with sufficient line of credit to buy forward ... and of course many of these jokers are chronically under-capitalised.  No proper wholesale player is going to countenance selling forward to that type of counterparty (except on punitive terms like cash upfront) - what we might call Northern Rock Syndrome.

Game over, and collapse of stout thin party when the cash finally runs out.  It's been happening left and right all through the last 24 months: estimates vary, but those who watch it closely reckon around 30* have gone under.  And there are dozens more of these chancers still out there!

They delay their demise, of course, by hanging onto the VAT and "green" levies they've collected from customers and ought to be remitting promptly to the authorities.  The highest-profile delinquent in this game has been Robin Hood Energy** (supplier to J.Corbyn esq.), established by the Momentum eejits who run Nottingham City Council, and much lauded by Ms Nandy (a mistake, that).  Owing £9.5mm in Green levies, their licence was on the point of being cancelled by Ofgem last autumn, when the hapless Nottingham tax payer rode to the rescue ...

Does it Matter?  (Ans: Yes)

Many of the capitalists amongst us instinctively say 'no' - it's the role of the market to facilitate those with good ideas and with bad ideas alike, to take their chances at their own expense.  The good will thrive, the useless will fail, and Darwin will decide which ones are which.

That's fine, up to a point.  But as some of our perceptive BTL commenters have noted, these particular corporate failures are not victimless.  OK, the customers get reassigned to other suppliers: but there's hassle for them, and cost for us all, as the new supplier gets to recharge any costs it incurs through the process.  Furthermore, when a company goes under owing Green levies etc, the deficiency thus arising is also automatically "mutualised"  - through all our energy bills.  Meantime, the founder of QueerStreet Energy (formerly NoName Energy) may have been making out like a gangster for several years, and retires comfortably to plot the next scam.

Ofgem is truly culpable in all this.  The warning signs were there even before GB Energy went under (how the Hell could anyone imagine there could be 100 viable suppliers in such a market - FFS!); but if they'd at least acted decisively at that point, they'd have saved us all no end of trouble.  I'm often broadly congratulatory towards Ofgem: but on this one they've screwed up bigtime, in the most disgraceful fashion, and seriously brought the open energy market into disrepute.

As I wrote on Monday in another context: free markets need good regulators!

ND

________
* Some are so small and obscure, their names and departures have passed unrecorded in the MSM nor even in the trade press.
** Another time we'll look at the sorry tale of Local Authorities getting into energy supply.  Also, from yesterday's episode, we'll look in future at how Industrial & Commercial energy buyers who should know better often get shafted - and how those that know even less get seriously turned over.