Energy companies vs Cameron

 
Gas ring flame

I asked the boss of one of the UK's biggest energy companies what would happen if they were forced by the government to give all their customers the lowest tariff they offer.

"It is very simple" he said. "If we could not adjust charges depending on how people pay, we would have to raise our basic price".

Which probably explains why the energy minister did not conspicuously endorse David Cameron's statement of yesterday that energy companies would be forced by law to put all their customers on their cheapest deals.

However the prime minister has highlighted an issue which many would say needs addressing - which is why customers can pay such wildly different amounts for their power.

Why doesn't competition lead to the vast majority of customers demanding and achieving the best deals?

There seem to be three connected flaws in the market.

First, that customers - even sophisticated business people - find their bills very hard to understand. The combination of fixed and variable payments for power is confusing for many.

Second, there is no standardised structure for a basic energy bill, so it is hard - without the aid of price comparison websites - to compare the charges of different companies, especially when there are hundreds of different power packages extant.

And finally, many households are frightened that if they move energy suppliers, there will be mistakes and glitches, and they also don't believe that lower prices offered by a rival will last very long. So they stay put. Some 40% to 60% of customers never switch.

The "Big Six"

A bit like banking, six big companies dominate the industry. And none of them is a young challenger offering a completely different kind of approach to pricing and service.

A prominent entrepreneur told me that energy companies' pricing practices make it impossible for someone like him to create a venture that might gain a foothold. He had worked on entering the market and had given up.

Why?

Well the big power companies do offer very competitive terms to new customers, prices that are impossible for a new entrant to match. And they can offer such cheap deals, he said, safe in the knowledge that most of their customers are too scared or lazy to shop around for the cheapest deal.

So, in his view, the most useful reform the government could offer would be to force all the companies to offer a single basic, easy-to-understand and easy-to-compare tariff, so that more of their customers had the confidence and ability to change providers.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

This column...

This column may be a bit quiet for a bit, because I am away from the office.

Read full article

More on This Story

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 180.

    re#179 JavaMan
    We'll get it finished one day and it will be better; it's just a long, hard road to walk in the meantime ...

  • rate this
    0

    Comment number 179.

    Don't you just love 'Democracy'

  • rate this
    0

    Comment number 178.

    re#175 Corum
    Or when we see them chasing each other round the Formula 1 WC circuits of the world!

  • rate this
    0

    Comment number 177.

    @172 Steve
    They are not all PPe grads from Oxford.

    The system can get anyone of them in its grasp but the people to do something about it are us. If we don't get our representatives representing and vote them out when they don't, who is to blame? The MP? Parliament? Political parties? Other bits of the system?

    Or J_f_H?

  • rate this
    0

    Comment number 176.

    This whole thing is a sham. It is ridiculous to think anything like this will deliver a better deal for the public from multl-million profiteering industries.
    Everything Thatcher touched turned to gold for the rich and clay for the public. It really shows how out of touch with the real word Mr Cameron is.

  • rate this
    +1

    Comment number 175.

    If I see one more £billion stream of adverts for banks, energy companies, or a compare dot company for all of the above I will scream.

  • rate this
    +1

    Comment number 174.

    I will set aside all my political opinions if this ConDem government get out of their personal in-fighting issues and stand up against energy companies taking the * out of British consumers.

    Build right now for more of our own mix of power stations to replace those closing. Yes, I voted for LimpDems, but can see their pointless talking. Just do it and build power stations for UK energy security.

  • rate this
    0

    Comment number 173.

    They used to say DC was a brilliant spinner however he just now just comes across as an idiot. The energy companies are going to announce the tarrif in a couple of days anyway-which now they will have time to do away with the present cheapest and make the middle ones the cheapst so we will have topay more anyway, he is so clueless it's unbelievable. Still only about 930 days to the election

  • rate this
    +1

    Comment number 172.

    163.Up2snuff It used to be the case that most politicians cared and had morals at the start of their careers. They gave up another career to do a public service which did not pay a massive wage. Now..£68K+£20K+Rent from the house/flat the taxpayers bought, all 1st class travel/hotel costs + part time positions, not of course for your lobbying clout, just by being an oxbridge politics grad.

  • rate this
    +1

    Comment number 171.

    Robert,

    What have OFGEM be doing all this time? Certainly not looking after customers interests! They are still in shock over enforced power plant closures reducing supply security despite knowing the basic facts since their inception - what a farce!
    Suitable acronyms for OFGEM anyone? Oh Forgot Gov. Expects Mediocrity.

  • rate this
    0

    Comment number 170.

    Has anyone noted that no matter who reads your meter and issues the bill, the price has to cover the capital cost of the power plants/gas well, the wires/pipes to the customer, the cost of the fuel (for gas and coal), and pay the workforce. Already that's over 90% of the bill. Simply being connected has a cost, even if you never used a unit.

  • rate this
    0

    Comment number 169.

    The current situation with its myriad of pricing just isn't acceptable but the industry will put all sorts of objections up to try an prevent change. A clear plan to be:
    1. Legislate to ensure each a company has a single underlying price rate they charge for power
    2. Set down limited scenarios where adjustments to price are allowed eg "interest" adjustments on payment methods and "price lockins"

  • rate this
    +1

    Comment number 168.

    "he said, safe in the knowledge that most of their customers are too scared or lazy to shop around for the cheapest deal."

    As with most things - the answer is within our own power, not politicians.

  • rate this
    +1

    Comment number 167.

    Does anybody else think that if the energy companies have employed Angela Knight as their spokesperson then they must have something to hide..? Just remember her last job, as stout defender of the banking industry

  • rate this
    0

    Comment number 166.

    149. John_from_Hendon,

    That's the first time I've voted you up, keep up the good work ;-)

  • rate this
    0

    Comment number 165.

    The supply business is not the main problem with retail energy prices: it's government increasing levies and taxes, hidden within the prices, to fund wind turbines and other renewable schemes, which subsidise inefficient tehnologies and put money in the pockets of a few landowners. Like fuel duty, these are scheduled to continue rising. This was started by the last government and now this one too.

  • rate this
    0

    Comment number 164.

    @154 & 158
    The pressure is on to have 'an initiative', something to keep the media interested, 'talking about us & not them', appear to be doing something, etc.

    Not a lot of difference between Dave & AB/GB really. Dave could fix some of the consumers energy problems quietly, dealing with the 'in-house' stuff first before getting the energy Co. MDs in for a chat.

  • rate this
    -1

    Comment number 163.

    @149J_f_H
    May I respectfully suggest, John, that not only do you appear to not know much about banking but also not a great deal about politics, systems, business, etc. You also appear to be very definitely supporting the wrong Party & are therefore very wrong in your enthusiasm for the EU!

    Most people do have ideals when they start in politics & very definitely do not do it for the money!

  • rate this
    0

    Comment number 162.

    Despite all the carping, it is impossible to ignore the fact that this is a good news story. The majority of consumers never switch because they can't understand what is going on. DC is quite right and his intervention by making the announcement in parliament stops others from diluting the policy. Well done for once. DC is learning how to steer the civil service and quangos.

  • rate this
    0

    Comment number 161.

    But, for the 3 reasons you listed, people will still not change providers.
    It's the old story: People tend to go with the familiar rather than the new.
    The real problem is a lack of trust: Any company anywhere is out to make a hole in your pocket and deepen theirs. It's now a cultural thing which has grown from the behavior of the banks & the fumbling of the govt.

 

Page 1 of 9

 

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.