#22 Insert ‘Desmond’ Gag Here

by forzabahab

It’s nearly Christmas, so I was going to try and pad this with a poorly researched (well, more poorly than usual) hack through my favourite things of the year, but I’ll save that. Instead in a tenuous wintry themed segue let’s talk energy, the Big 6, and your part in keeping them nice and rich.

Today sees Npower being fined over £3million for essentially lying to people to get them to sign a contract on the doorstep or over the phone. Scottish Power were recently fined over £8million for much the same thing. There are two things to take away from this.

Firstly, it shows you exactly how rife mis-selling is within the industry that no one is surprised by this news. Common ploys include a door to door salesman producing a survey (actually a contract) and asking the customer to provide their meter details and sign “to say you want further information on energy efficiency”. Once they have your signature the next you know is receiving a letter welcoming you to your new supplier. You’d be amazed how many people just pay up when they get their first bill.

Secondly, the fact that both companies didn’t bat an eyelid and just coughed up the money should indicate to you that they are happy to process this with the least amount of fuss possible. A cynical mind might conclude that they had more to hide, and that a detailed survey of their practices might be unwelcome….

The trouble with the privatised utilities is the same as with the railways. Different companies may charge you, but the infrastructure doesn’t change. If your train route moves from being with Greater Anglia to C2C it still arrives at the same station on the same track, run by Network Rail. If you change gas supplier from Eon to Npower it arrives in the same pipe. As a result changing if you’re unhappy is subject to almost infinite possibilities for problems. If you’re unhappy with your train company you’ll probably have to wait till their contract expires, or move house (unlikely). Similarly, to change gas supplier is, well actually it’s a simple process but takes a bit of time, normally a few weeks.

Given the success of the seven day bank account transfer system recently introduced the government were mulling over trying to get a similar policy in place for utilities, but instead making it a one day turnaround. This is lunacy. Legally the longest you can go without reading a gas meter is two years. If you are relying on customers to provide the information to move supplier an unscrupulous chancer could move five times in a month and keep doing it citing dissatisfaction with the service they’re getting. If they keep doing it long enough they WILL end up getting energy for free. Tough on the genuine cases of unhappy punters, but that simply can’t happen. Smaller players would be swamped by the increased admin costs (these are high volume low margin businesses) and the Big 6 would simply build in mitigation into their pricing models (currently 2% is set aside for ‘shrinkage’).

While this is shrouded in mystery people remain reluctant to change. In the two decades since privatisation British Gas are still far and away the biggest player in the domestic market. Why, their stellar customer service, or because people simply can’t be arsed to change? The large players prey on customers’ inertia, like car insurance companies who send you a hugely inflated renewal in the hope that you won’t bother to shop around as it’s ‘too much hassle’.

(Incidentally, watch how Royal Mail doesn’t adhere to this model. Since the infrastructure issues aren’t there for delivery it will be much easier for people to decide they want TNT or whoever to deliver their parcels (the truly lucrative part of the business). More churn equals more genuine competition, which was always the idea of removing things from state control.)

Energy companies have massive turnovers, and make massive profits. However the billions reported represent between four and seven percent net profit. If you have a buy to let property with that kind of yield you’d consider yourself to be doing ok. Hardly the moneygrabbing racket when put in that context is it? Of course, headlines use the monetary value rather than the percentages to present the Big 6 as evil greedy behemoths, freezing the elderly and plunging people into fuel poverty. Like lemmings the politicians come out with their half baked cobblers designed to mug voters into keeping them in office. Freezing prices of fuel won’t work. You’re dealing with forward bought commodities, often three years in advance. If we decide to bomb the shit out of some part of the middle east again it will affect the oil price, and as a consequence the price of every other fuel (inextricably linked, long story). That will make the current price fix a huge risk for any company, let alone the Big 6. Smaller players won’t be able to absorb it and will lose customers, and the main players will mitigate the risk. How? Well they’ll build it into the price of course.

This will result in price inertia, lack of competition, and won’t change the bottom line to you; namely that your bills will go up.

If you want true competition you really need to shop around. If you don’t there is no pressure at all for companies to innovate or win your business. That’s the real scandal here, not companies charging what they can get away with. That goes on in any industry, privatised or not.


Next time, something cheerful, promise.