Do the Big Six deserve their loyal customers?

Malcolm – Some of the reasons why people do not switch energy supplier are similar to the reasons why many of us are still using cheques, when electronic banking and smartphone payments are seen as the way forward by others. We are agreed that we need to keep cheques for the time being.

Many are not good with money. Look at the number of people who are living in debt and paying a lot of interest. Some struggle to cope as they get older. Unemployment, illness, family problems, caring for others and lack of time in our lives can make it difficult to make the right family decisions.

I don’t see why I should pay any less or any more for electricity and gas than my neighbours. Energy is vital to all of us.

Beryl, vertical integration does not seem to be a big problem according to the report, and also according to some independent energy companies.

You presumably shop around for much of what you buy. How should we then buy energy? We need to make it easier for people to find the best deals – quite easy already if you visit a comparison website and even easier if that does the switching for you – try Which?Switch. For others not au fait with the web then you can use the phone for example.

“A few pounds difference”? If it were, then maybe not worth the effort. But for people on standard variable tariffs then it can be one or two hundred pounds or so.

I am no friend of the energy companies but we cannot continually expect consumers to simply do nothing on their own account. No more than shopping around for insurance, food, fuel, household appliances and the other everyday chores.

Which? and Ofgem should be helping them get motivated to do this as well as trying to get a better energy market easier to access.

The CMA report is due in December, I believe.

Beryl, I understand your concerns, of course, and a minority of people may well be affected in this way. However that should not stop us helping the majority, now, to switch to cheaper tariffs, as soon as possible. I was astonished to learn that between 50 and 80% of some energy companies customers are on standard variable tariffs.

Well, bishbut heres one old codger who has switched several times. Think you comment is a bit general although I’m sure your heart is in the right place.

Indeed, another question could be “what do we think of CMA’s performance and capability?”. It reminds me of the MP expenses scandal. Blameworthy MPs deservedly got it in the neck, but what about those who signed off “cleaning the moat” as a reasonable expense???

Chris – You described yourself as an ‘old codger’ earlier, so I expect you can remember how inefficient some of our nationalised industries were. What has happened with energy following privatisation has been disappointing in my view. Yes we have competition, but it looks as if the shareholders are benefitting more than the customers. We have also allowed other countries to take a significant amount of control of our energy companies. After signing up with Scottish Power I discovered that it is controlled or owned by a Spanish company. Many of us question why so much has been invested in wind power, which is not in itself adequate to maintain a continuous supply of renewable energy. We are having smart meters forced on us, at vast cost. No doubt the government must share responsibility for these decisions. Despite simplification, energy pricing is a very complicated issue for the public.

Everything that I have read suggests re-nationalisation is a non-starter on financial grounds, but perhaps the government could control the worst excesses of the energy companies whose main aim is to serve the wishes of their shareholders.

Well Wavechange, I’m not altogether sure “re-nationalisation is a non-starter on financial grounds”. If the state bought out just one supplier and ran it well enough and with cheaper prices that would set the benchmark for other suppliers to follow or lose custom.
This approach would prove if a nationalised energy supply system could work. If it did work and the sate could not afford to buy back the rest then at least those companies remaining private would have to offer competitive prices and services. If the state system proved to be rubbish then it could be sold back into private ownership, but I think it could succeed if we learn the lessons of the past.

I still think this fundamental element of national infrastructure is too important to be left entirely to free market forces. A compounded issue when you realise all competitors buy from the same wholesaler and the only part which is really “free market” is the distribution and billing. So the potential for competition is therefore limited anyway, but the the beneficiaries of profits generated are the owners of such companies rather than the public. Seems a false economy to me.

Of course the privatisation of energy supply originally had as much, if not more, to do with raising money for the treasury as it did to benefit consumers. Back then the Government was effectively selling the family silver to balance the books. The same short term thinking we still see today with organisations like Royal Mail.

Don’t be fooled fundamental elements of national infrastructure can be, and in the long term are best run through national ownership. That is if run properly, and I see no reason why they shouldn’t or couldn’t be run properly, and certainly not simply because they weren’t before.

Chris – I have suggested that the state could try running one of the energy suppliers in an earlier Conversation, so we are agreed on that. I don’t claim any originality for the idea either.

I would be happy to see an unsubsidised state-run energy supplier as a competitor. I am concerned about the state’s ability to run efficient enterprises though.

Ofgem reports on the gas and electricity transmission and distribution networks as follows. Their costs currently amount to around £300 on an average bill.After privatisation by 2005 they were costing us 45% less due to efficiency savings. Network upgrades then added to costs but they are still 17% cheaper in real terms.

Is it credible that the government would fork out billions of pounds to buy out the shareholders of one of the major energy companies and just dump that cost on the national debt? And which one would it pick and on what criteria?

Is there any need for the government to buy an energy company to become a supplier, John?

John, I see no reason why the state has to buy an existing company to sell gas and electricity. It can do what 18 of the 24 suppliers have done – set up from scratch.

I am not a proponent though – track record is poor, political agenda might get in the way of proper operation. Would it be subsidised – in practice if not in principle? And if it fails we’ll end up with a big bill for the taxpayer. But some people still believe in state ventures.

I would much rather see a true cooperative supplier set up where it operates commercially but a profit share is distributed to its members – the customers.

Not at all – I was merely responding to Chris’s suggestion above: that the state should buy out just one supplier and run it well enough and with cheaper prices in order to set the benchmark for other suppliers to follow or lose custom. There is no reason to do it that way at all. It need not take long for DECC to create a fairly lean supply company staffed with the best brains in energy procurement, pricing, and tendering & contract management which are the key functions to keep in-house [plus commercial policy, finance, internal admin, HR, legal, and management]. The customer services, meter reading, billing and IT functions could all be contracted out to a service provider [like Capita or Serco for example – there are others]. Managing outsourced contracts competently, efficiently and economically would be a major challenge. Avoiding political inteference [like “buy more renewable energy even if it costs more”, or “don’t cut people’s supply off even if they won’t pay”] could be another. The relationship with Ofgem would be interesting. Unless it bought some customers from another company it could take ages to grow to an economically efficient entity but it could start with some highly-attractive tarifffs to appeal to consumers and then let the price war begin.

Malcolm – My previous comment was really following on from Wavechange’s question. I was not disagreeing with you. Although I think a competitive state supplier could work, I share your reservations and would prefer a cooperative entity if it’s to happen at all. Overall, I would rather see tougher regulation of thecommercial structure to raise service standards and to curb excessive profits and shareholder dividends One of the criticisms of the existing structure is that the energy comanies are not taking much commercial risk for the 5% or more in profits they are generating. That’s not entirely true as so much now depends on the weather and on the future wholesale prices of gas and power station fuel [both Centrica and SSE have come a cropper there] but they’re still doing very nicely thank you for boring old utiity companies.

wavechange, might be you who put the idea of the state buying one supplier in my head, and I won’t claim it as an original idea either, but I still think it’s a good idea.

I’m a scientist, Chris, and know that we can speculate all day, but the only way we will find out whether a private company or the state will do a better job is by comparing their performance in the same market. Energy is so important that it’s not acceptable to have so many people paying far more than they need to, and it seems very likely to me that the current confusing energy pricing has evolved to promote confusion.

I am watching with interest what happens with Royal Mail following privatisation. So far I have seen no difference in the excellent standard of service I receive. It is probably too much to expect prices to fall but at least their CEO is on track to receive remuneration typical of a company.

It does not matter who comes up with an idea unless those in charge of this country bring it to fruition. 🙁

Do you think the shareholders would approve of their companies helping their customers in this way, John?

Well, sometimes goodwill yields dividends. It’s always worth a try in my book. Once one of them did it the rest would surely have to follow or be shamed.

As an alternative to the public energy companies could we set up a true co-operative energy company where the members (customers) receive a profit share? Who would like to set one up?

I’d like to see Which? put forward an impartial, unbiassed and constructive case for how best to provide energy – bearing in mind that private companies will need to make a profit for their shareholders. Perhaps they could ask for some or all of the “fringe costs” to be removed from our energy bills and funded from taxes; smart meter costs and environmental/social costs for example that will add up to £100 a year and are then subject to vat, it seems. Look at the regulated profit on transmission – it is quite generous. Put a stop to expensive and unreliable “renewable” energy sources like wind and solar with high rewards for the investors. Look into tidal power as an option. Ensure that the needy are properly supported with a subsidy – but not those who do not need it (so scrap the single petrol pump tariff mantra). Give winter fuel payments only to those in need – perhaps exclude anyone paying standard rate tax.

We may not agree with them all, but rather than moaning about a “broken market” and ” competition isn’t working” (and not just the Big 6 – there are around 24 energy suppliers – why exclude them?) wouldn’t it be better to put forward positive proposals?

Anything would be better than large companies making large profits at the expense of consumers. But why complicate the matter with profit sharing when all that’s needed is to lower prices?

Any company has to make a profit to make it worthwhile for shareholders to invest in it, otherwise they will take their money elsewhere. But profits are not immediately apparent – as you see from Centrica’s results (owners of British Gas). They will depend on weather and raw fuel costs for example over a year,So a co-operative would not know its profitability until after a significant trading period.A dividend would deal with this, in effect lowering prices in retrospect, just as the old Co-op did. Not a complication at all.

Maybe we do need to take our energy supply back into public ownership. There is very little trust in the energy companies or Ofgem.

So you trust the Government then? It has repeatedly (all parties) shown itself incapable of running pseudo-commerial venture – the Dome? Incompetence in IT projects? Purchasing in Defence and the NHS? Fire services amalgamations?

Part of the so-called “overcharging” is down to customers not taking advantage of the better deals on offer – the major change being to switch from a Standard Variable Tariff to a cheaper fixed one. We must tackle the question as to why people don’t bother to reduce their bills – give them education, help, publicity – rather than constantly demonising one side in this debate. It simply takes a look at the Which?Switch website, or a phone call, for a significant majority to see how much saving they could make.

There are 24 energy companies for us to use. Are they all colluding against us?

I really don’t know, Malcolm. What I do know is that there is very little trust in the energy companies. See Which? Consumer Insight, for example.

I’ve worked in education and know that that it’s not just a case of teaching people. Those who are doing the teaching have to learn a great deal about how to do their job effectively. I expect that you have encountered those who do a good job and others who are poor and ineffective at teaching.

We have to recognise that energy is essential to everyone. (You have mentioned that housing and food are equally important, but those are separate debates.) If all the data about tariffs is available so that we can use Which? Switch or other price comparison websites, why not just switch people to the tariff and supplier that offers them the best deal, unless of course a householder chooses to decline this offer?

We are in the 21st century and should be thinking a lot more about helping those who are not in a position to help themselves. I’m not demonising anyone. I’m merely supporting Which? in its efforts to ‘fix the broken energy market’.

Well I most definitely approve of what you say but good luck getting it to happen.
The words Turkeys and Christmas spring to mind.

As a computer literate person who switched suppliers last year, and looked at the market after 12 months before switching tariffs with the same supplier, I have to say that I found it incredibly difficult to find the detailed tariffs on the web. Some of the comparison sites and some of the suppliers emphasised a nominal comparison rate which I found meaningless, and emphasised attempts to estimate the potential saving compared with my present tariff. (The problems with the latter comparisons have been discussed on press and TV recently). I know my annual consumption of gas and electricity and their variability, hence I want to know the future unit costs and daily standing charges for each fuel to help me decide – including the element of risk if we have a particularly cold winter and use more fuel than usual. After all, what is of importance is the difference between potential suppliers for the coming year, while the difference from the bill for the last year is an informative piece of information only.
A final curiosity, I do not believe the monthly direct debit suggested on the suppliers website when I signed up for the tariff change agreed with that quoted in the subsequent confirmatory paperwork. Fortunately, I am in a position to cope with any consequent overpayments until the real costs are revealed by future bills.

bsg, I’ve only ever used Which? Switch. There, when the tariffs are listed, you click on “more information” or somesuch and it brings up a direct comparison with your existing supplier of unit cost, standing charge, any exit costs, discounts etc. I’d recommend it (although yesterday it seemed to be playing up). And they seem to list all supplers whether or not they can switch you through the site.

Fair enough. But if I want the prices for a given supplier, I go to that supplier and not some intermediary who may, or may not, have recognised a price alteration by that supplier. I was doing my latest comparison during the few weeks earlier this year when suppliers were announcing price changes.

Beryl, the concern is that most customers do not switch – between 50 and 80% apparently still on Standard Variable Tariffs – not only “the vulnerable”. and yet with a phone call or a visit to Which?Switch most people could immediately reduce their bills. We need to tackle this inertia – sticky customers. Education, publicity, whatever. You cannot simply blame the energy companies.

I’ve changed tariffs a number of times. At no time has my supplier raised their prices “as soon as I do”.

I guess most people will want to save money – we should focus on helping people take advantage of what is on offer. I’d hope Which/ might do that.

There are 24 energy companies – are they all colluding? We should focus on the whole market, not just the “big 6”. Most people can change to any of these companies.

Part of the reason may be fear of the unknown, Malcolm.

I had a very frustrating time switching from e.on to Scottish Power. I think the fault lay with SP but I cannot be sure that it was them and not e.on. The whole process took a lot of my time to sort out. I should have made a complaint. I don’t relish going through similar hassle again, and I wonder how well some elderly and vulnerable people would have coped.

Expecting everyone to use switching schemes is unreasonable.

The CMA in their interim report states:

“Customers who did not switch were more likely to be on low incomes, to be over 65 and living in social housing and without qualifications. They were also likely to be disabled, a single parent and struggling financially.” That still accounts for a large section of the populace.

I have spent many years working in a voluntarily capacity with the mentally disabled, many of whom are very well educated professional people but because of their disability they are unable to adapt and keep up with everyday pressures and the constant changes taking place in modern society today.

There is no doubt that switching plays a large part in restoring some semblance of normalcy in a very dysfunctional system and no one is denying that Malcolm, but for if improvements are to be made, the whole complex structure that created the need to switch in the first place needs extensive analysis and examination before consumers are able to place any trust the market again.

Beryl, the CMA have not yet drawn conclusions from the retail sector. However they have surveyed 7000 customers and found 50% have never switched and a third have “never considered it or thought it impossible”. People who were more likely to be in the latter category included: those aged 65 and over; those in social accommodation; those with no qualifications; and those on lower incomes.

This does not suggest that all of these people cannot switch, simply that for their own reasons they have not. I would be offended if it were suggested people in these categories were incapable.

What I have suggested is for those who are capable but don’t choose to switch we use publicity to educate them in the ease and benefits of switching. They can switch through the internet, or by phone – lack of a computer is no barrier.

I have also said elsewhere that those who are genuinely unable to go through the switching process but who want to should receive assistance to do it – throught family, charity such as CAB, or other organisations. I do not see how energy companies could be expected to hold information on all individuals that might identify them as vulnerable, unless the government somehow made it available.

A point made by the price comparison websites was that using their services, and charging the energy companies a fee for switching, was substantially cheaper for the energy companies than them promoting their own products through advertising. So it may well be bills are held down by PCW sites.
If you change to a new supplier directly after getting a quote from a PCW then no fee is involved, just the cost of the energy company setting up your account absiorbed into their operating costs.

No-one is charged directly for switching energy suppliers, though the costs will be paid for by all energy users. Are we happy that those who fear every bill and sit in the cold are subsidising the costs of you switching supplier? The same obviously applies to anyone else involved in the switching game, so I am deliberately not making this a personal comment.

I strongly believe that we need to consider the more vulnerable members of the community.

I don’t believe that the price comparison websites are effectively constraining the industry cost of switching by avoiding the need for energy companies to undertake their own advertising and promotion. Their own competitive advertising is becoming excessive [and stupider with each new iteration] to the point of discouraging people from going there.

“I strongly believe that we need to consider the more vulnerable members of the community.”

I, and others, have repeatedly pointed out the need to help those who are unable to help themselves.

I and others have pointed out that simple unit pricing would make it as easy to compare prices as it is to compare prices of petrol. The help you suggest is not in place, yet we have had years of confusing energy tariffs, and little seems to have changed.

Only around half of an energy bill is actual energy. The rest is made up of transmission and distribution, green initiatives, government charges, meter reading, smart meters, administration etc. So if I am unfortunate enough to have to use 3 times as much energy as you (elderly, unwell, in all day, badly insulated rented house or I have a large family and low income – so maybe a “vulnerable” user) then I will pay 3 times as much for my energy – fair – but then 3 times as much for the rest if all the costs are bundled up into a single unit charge. It is simple, but quite inequitable.

Use a comparison site (or the phone) if you are unable to unravel tariffs and you will easily find the best deal. It is not difficult if you make the effort. For those who can’t, help them. I do.

We must have discussed this in most of the Conversations about energy, Malcolm. 🙁

The present standing charge means that those who have large houses and/or are profligate in their energy use are being subsidised by those who are small users because they simply cannot afford to keep their homes warm.

Anyone who is a large energy users for the reasons you have given should be entitled to benefits, and we have systems in place to help people claim benefits they are entitled to.

We don’t give disability benefit to those who are not disabled, so why should we allow low energy users to subsidise those who have pots of money.

Let’s show some compassion to those less fortunate than ourselves. I expect that many of those using Which? Conversation are reasonably financially secure and outside London are mainly living in their own homes. The views of much of the population may be unrepresented here, but have a look through the Which? Consumer Insight pages to gain an impression of how important energy pricing is to the public.

I hope Which? might host an informed conversation about energy charges so we can look at the facts and decide how we think the fairest way might be to charge for energy. Maybe Ofgem could be invited to explain all the components that make up our bills, which of these are directly related to consumption of energy, which are only partially related, and which are fixed costs however much, or little, you use.

I would like to see bills that fairly reflect our actual energy usage, not ones that distort the market and give indiscriminate subsidies.

Now back to loyal customers……? 😀

I would be interested in debating how the energy companies are spending our money on investing in the future. I think we were agreed that investment in renewable energy should not just focus on wind power.

The problem of lack of loyalty goes much further than our energy suppliers, of course. I presume that the opportunity of companies to exploit existing customers must outweigh the financial advantage of keeping them. That’s not how I would run a business.

Malcolm: In your Feb 1st post you stated you have switched to two of the Big Six for your best price deals I.e Scottish Power and EDF who are fervently engaged in promoting cheaper deals at the present time in order to procure as many customers as possible whilst prices are lower in an ‘open and free market,’ and that makes complete sense on the surface, but anyone opting for these choices is only contributing to the status quo by keeping the smaller companies out of the marketplace and also from competing against the Big Six by enabling them to revert back to their original tactics through tacit collusion and complete control over competition and prices?

This is a typical example of the psychology of selling and dangling the proverbial carrot and the Big Six are fully aware of the percentage of potential customers who are always ready to opt for a ‘bargain.’ After all why wouldn’t they?

Time for CMA intervention to break up this very unfair practice and restore competition back into the energy market.

Beryl, are you suggesting I should not look for cheaper deals on principle? I’d be quite happy to switch to one of the smaller energy companies if they offered a better deal. So far in my area they have not.

Do you not shop around for best deals? Fuel, food, insurance, domestic appliances and so on? I do. On a limited income I need to be prudent in how I spend.

The CMA are looking at all the facts, will report in December, when hopefully the market will be exposed for us all to evaluate.

Yes I do shop around if I consider it will maintain fair competition in the marketplace and ultimately bring prices down, but would hopefully be aware of any dubious practice in the future that prevents this happening.

There is always the chance you may receive better service and pay a little extra of course if choosing a smaller company. As the saying goes “You pays your money and takes your choice.” Or shouldn’t that be the other way round?

Beryl, when purchasing anything we have the freedom to choose a supplier. I am simply pointing out that as far as getting the cheapest deal for energy – if that is your wish – the means exist to do it relatively easily.

I want to hear the facts of this industry which hopefully the CMA will determine. Impartial, unbiassed and constructive information is needed so fair people can draw fair concusions.