Energy Companies

Mrs Thatcher is best known for her bold aim to reduce the costs and increase the competitive edge of nationally-owned utilities such as Gas and Electricity by selling them to the public through share issues. The UK now has six large energy companies selling both gas and electricity (the Big 6), and numerous smaller companies.

So has this worked? Has this market-approach made gas and electricity cheaper for consumers?

There is a deep problem with assuming that a product such as electricity can be bought and sold and haggled over in a market by the domestic consumer. Any energy company selling you electricity is selling exactly the same product as all the other energy companies, even to the extent that they are selling you the self-same electrons.

So why would you choose British Gas over Scottish Power? If the product is identical, then the only difference is the price, and everyone would surely choose the cheapest electrons. The only recourse the energy company has is to obfuscate, making it difficult for the public to know exactly what they are paying and making it impossible to compare the price between companies.

This is neatly achieved by a bewildering array of tariffs. You can pay 18p per unit (one KiloWattHour) for the first 150 units in 3 months, and then 13p per unit for all further consumption, or a standing charge of 26p per day and a fixed unit charge of 13.5p per unit, or a nighttime rate of 5p for 6 hours, paying 17p per unit in the daytime for the first 270 units in the summer, or 220 units in the winter . . . Confused yet? All of these potential variables can then be moved up or down.

Government watchdog Ofgem exists to supervise fairness in the market. It specifically states that energy companies must not “bamboozle” customers. Two years ago, under the new Conservative Government, companies were told to create 5 identical service-levels, which could be compared across companies for price. That never happened. And how could it? We would all just choose the cheapest plan. Last year, Prime Minister Cameron stated that energy companies would be compelled to give customers “the lowest tariff.” That has not happened either.

Far from reducing costs to the consumer, there are increased costs incurred by comparing inscrutable tariffs. An entire industry has grown up, paying fuel advisors like myself, numerous private companies operating switching sites and government agencies that aim to help people through the mire of (over 200) different tariffs. And for each individual householder there is the time wasted in fiddling about switching from one company to another or from one tariff to another within the same company.

When I started as a Fuel Poverty Advisor with the charity Citizens Advice Bureau, I attempted (in vain) to compare tariffs to help my indebted, vulnerable clients find the cheapest fuel. The only method is to go to an online switching site which compares all tariffs, but even there, it is not certain that all energy companies are being fairly compared. Nor is it easy for an 80-year old pensioner without a computer to use such sites.

I now operate as a Green Deal Advisor under a new Government Scheme through which I advise on improving energy efficiency in the home. This involves recording the tariff that the consumer is currently paying. I have been struck by how very difficult this is.

Two householders with online accounts could not find their tariffs. They had to memorise the scheme-name and look it up in a directory. A third householder phoned his energy company to discover he was paying an astounding 18p per unit of electricity. In that same phone call, he was told that the company could switch him then and there to a different rate of 12p! A fourth tried to switch providers and asked the new company what its lowest tariff was. The company refused to tell her unless she first revealed what she currently paid.

There are a few companies in Britain that provide all of their electricity from renewable sources. These companies are small but growing, and even the Big 6 usually have a Green Tariff whereby your payment is nominally put against their renewable energy sources.

I advise my clients to look at the companies whose electricity is wholly from renewables. They have been set up by people whose motivation appears to be concern about carbon emissions, and who fund and support renewable technologies.

They are also straightforward in their dealings with customers and tend to have one single normal tariff per geographical area (and maybe a second tariff system for low nighttime use). Thus it is easy to see how much their electricity costs, but still difficult to compare with the other tariffs. My impression is that the electricity is slightly more expensive.

The third advantage of green-energy-only companies is that they support customers who set up their own renewables, helping them through the world of government grants and incentives for solar panels and wood boilers. (That obscure world is another story for another time!)

There is no easy way to regulate a market in which market forces cannot successfully operate. It may be that the procurement side of the market operates better, though energy companies appear to be subject to the same wholesale prices. Naturally monopolistic products, essential for life as we live it, do not lend themselves easily to market forces and should not be left to the vagaries of a poorly regulated artificial market.

Image Credit: By Fir0002/Flagstaffotos

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