Henry de Zoete is the Co-Founder of ThisIsTheBigDeal.Com and former special advisor to Michael Gove.
Britain’s regulators this week confirmed what everyone else already knew: the energy market is broken. The Competition and Markets Authority will now set about finding long term solutions to the industry’s most pressing problems. And until their proposals take effect some time after 2016, we will all keep getting ripped off.
But as Ofgem threatened to send Britain’s energy market to the daddy of regulators, SSE tried to pre-empt a PR spanking with a promise to be very well behaved. They announced a two year price freeze. This was welcomed as A Good Thing by all political parties, and especially Ed Miliband. The Labour leader applauded SSE for making part of his vision for Britain come true.
However, that wasn’t all SSE announced. They also revealed how they would pay for this price freeze. The energy giant is bringing down the axe on 500 jobs and abandoning £20bn of proposed investment. Hardly positive news. So the political leaders’ rapturous ovation for SSE yesterday should be seen as something of a PR coup for the Perthshire titan.
When all is said and done, all SSE gave us was another fixed price tariff. And what kind of price are we talking about? A price level that saw 250,000 exasperated customers abandon SSE in 2013 because they’d had enough of the hikes. Since 2005, energy companies have doubled the average British dual fuel bill. In the last four years, they quadrupled their profits from supplying British homes.
That same year, despite haemorrhaging customers, SSE actually increased its profits by £1.5m. The interests of energy companies and consumers are plainly not well-aligned. Consumers are happiest when companies do battle for their custom. Yet competition in the energy market does not resemble an all-out scrap so much as a siblings’ playfight. Three of the Big Six energy companies have almost the exact same market share in gas in 2012 as they did in 2007, with npower, e.On and SSE on 12 per cent, 13 per cent and 15 per cent respectively.
Electricity tells a similar story, with EDF and Scottish Power rock solid at 13 per cent and 12 per cent each, and British Gas only going from 25 per cent to 22 per cent between 2007 and 20012. Those five years of supposed free market free-for-all could not reduce the Big Six’s market share in either gas or electricity below 95 per cent.
When presented with the dead parrot of energy market competition, companies protest that switching shows it is alive and well. But switching has done very little to change the structure of the energy market. In truth, 2013 saw the second lowest number of annual switches since records began. And if it weren’t for that a bumper November (when 600,000 customers reacted to yet another round of price hikes by deciding enough was enough) last year would have marked a new low for Britain’s annual switches.
The tragedy is that switching does have the potential to transform the energy industry. But switching as it currently stands does not do the job. The question is why? One reason was the proliferation of tariffs. Until this year, energy companies could release a new tariff every day of the week. This blizzard of offers blinded consumers, who could only rely on price-comparison networks for guidance. Those price-comparison sites did very well from the utter confusion of the average British billpayer.
To their credit, Ofgem have simplified matters with their Retail Market Review. Now energy companies can offer a maximum of four tariffs for each fuel. Only under one circumstance can they create a new tariff, and that is for a ‘collective switch’. And collective switching can address the other main issue that prevents people switching. At present, no one customer feels that they, or their switch, can make a difference.
Together however, we are a big deal. That’s why we set up The Big Deal (geddit?). By bargaining together, people can get a better deal for themselves and save the energy industry in the process. Because when big group of people demands a better deal together, that looks like an attractive commercial proposition. And when energy companies bid for their custom, that looks a lot like competition.
We don’t need a two year investigation to make that happen. We, Britain’s billpayers, can do it now. The technological forces behind The Big Deal are irresistible. The internet makes it easy to join communities and derive value from their membership, even if you never meet your fellow members. Britons are using our website to form a community whose collective bargaining power brings them maximum savings with minimum hassle. In this way, people power can fix the energy market quicker than politicians. And that will probably resonate across the political divides. For some we are the Billpayers’ Alliance. For others, the Consumer Union. For most people however, we are just a brutally simple solution to an unbearably frustrating problem.