Household energy: what gas and electricity suppliers must learn from the oil companies

Here we are again.

Great Britain, I can report, has descended to the yaboo politics of yesteryear. Inept career politicians, none of whom have ever managed a business, biff-baff each other with naïve and unrealistic ‘policies’ to the detriment of us all – especially the old and needy.

Biff. Last week the Conservative-led Coalition government privatised the Royal Mail, a move which runs the risk of devastating rural communities and which, with a bit of forethought, was completely unnecessary.

If, over seven years ago, I was able to foresee that the future of the Post Office (and thus Royal Mail) was in parcels not letters, why couldn’t they? If they had, they need never have capitalised on the sale of this precious asset or, if they had to, they could have earned a lot more for it.

And could they not have announced this revenue stream earlier in the Parliament and made less savage cuts? Sometimes, you think they want people to suffer.

Baff. Labour Party leader Ed Miliband’s laughably naïve announcement that, if elected, he would freeze energy prices for twenty months from the date of his election (oh dear).

Does anyone think these seat-of-the-pants, counter-punch ‘policies’ have been properly considered or professionally researched and analysed?

Doesn’t Mr Miliband realise that, just like the Royal Mail last week, the supply of gas and electricity to UK households has been privatised and, thus, laid open to ‘competitive’ market forces? Has he no idea what this means?

Here’s how it is:

- any commercial business will focus on the customers who can pay their bills

- no commercial business will market their products to people who cannot afford to pay

- gas and electricity are ‘commodities’ and traded on global commodity markets

- no business will buy a product for more money than they can sell it

- if the energy companies don’t buy gas and electricity, they won’t have any to sell

- if they don’t have any to sell, householders cannot buy any so they will freeze and starve

- or the UK government will have to step in and take over. This is called nationalisation

- if the Labour Party want to nationalise gas and electricity, why don’t they say so?

So is this price freeze feasible?

The answer, of course, is no. Anyone with any business experience at all will tell you the energy companies won’t wear it and householders will pay the price (sic).

Sorry, I’m not being very helpful, am I? Rather than rant and rave, do I have any consumer insights or creative thinking I can bring to this issue?

I think I do. Here goes:

Quite often, the best thing in these situations is step away and start again and apply what one London advertising agency would call ‘brutal simplicity of thought’.

So, for now, please forget gas and electricity.

Let’s take a look at oil.

Oil is a commodity just like gas. Very like gas, in fact.

We need oil to run our cars. In the UK, we call it petrol. In the USA, they call it gas. See?

How do the oil companies sell us petrol (and diesel) for our cars?

How do what they call ‘downstream’ services work?

And how do we, as consumers, behave?

We drive along the road and we see from the dial on the dashboard that we need more petrol and so, as we spy the various ‘petrol stations’ owned by various oil company brands, we choose where to stop and fill up our tanks at the rate the petrol station has on display.

My Dad always used to choose Shell or BP, as he felt it was patriotic. For the same reason, he always drove a British car.

Me? I am a much more ruthless consumer than my Dad. My current car is Japanese, my last one was German and I don’t care which brand of petrol I put in my car. I always go for the cheapest.

Hang on. Actually, that’s not true. I think I go for the cheapest, and this is what I would tell anyone who asked me. In reality, I sometimes go to this petrol station as they sell the best coffee or, oh yes, that one which sells my Mum’s favourite biscuits.

Consumers, eh?

But let’s own up to it, in many ways the petrol market is competition at its best:

- the oil companies are dealing in a global ‘commodity’

- ‘upstream’ oil prices go up and down with global markets

- ‘downstream’ prices are fiercely competitive

- consumers are ruthless

- consumer ruthlessness forces oil companies to ‘add value’ in different ways

- this makes purchasing petrol a much more pleasant experience than it used to be.

Am I right?

Now, let’s return to the household energy market.

When, if ever, was the last time you ‘switched’?

I switched last year and, I can tell you, whatever the politicians and energy companies say about how easy it is and how many attractive tariffs there are, it is not true. You are being conned.

You may not know who Ed Davey is. He is called ‘Energy Secretary’ and he got rather huffy in the House of Commons last week. He said:

‘We are pushing competition and I would urge customers of a British Gas who are unhappy to change their supplier.’

Well, Mr Davey is clearly a very important person but does he know that, in the real world, ‘switching’ is a very difficult, complex, confusing and distressing experience?

First of all, there is a lot of reading of meters involved.

Unlike the petrol stations – where you put the nozzle in your car and, very quickly, an electronic gauge tells you exactly how much you are using and exactly, to the penny, how much you are spending.

Yet I cannot be alone when I reveal that my gas and electricity meters are old, dirty, decrepit and inconveniently placed in my basement where I cannot stand upright.

When I am forced to locate these meters (having put on dirty clothing for the purpose), I have to admit I don’t like ‘reading’ them, I don’t understand them, I can’t be bothered to tell one from another and I don’t understand what they are telling me.Gas

Here’s my gas meter (I think):

It measures ‘cubic feet’.

What are ‘cubic feet’?

How big are they?

How much do they cost?

By the way, the meter tells me it is ‘the property of British Gas’ even though I am not a customer of British Gas and that yellow label below the meter says ‘in the event of an escape’ I am to shut it down and call an out of date phone number. This handwritten, scribbled instruction is dated, reassuringly, ’21/10/91′. I think.Electricity

And this is my electricity meter:

It measures ‘kWh’.

What are kWh?

How many do I use?

How much do they cost?

The answer seems to be on dials displaying units of 1,10,100, 1000 and 1000 but, if the dial is right on a number, how do I tell whether to go above or below the number on display? It is all very confusing.

Within the meter is a little sign saying:

‘PROPERTY OF LONDON ELECTRICITY BOARD’

Next to it is another sign saying:

‘THIS SERVICE AND APPARATUS IS THE PROPERTY OF BATTERSEA BOROUGH COUNCIL. IT MUST NOT BE TAMPERED WITH. PENALTY FIVE POUNDS.’

Blimey, I haven’t gone online to switch yet and they’re threatening me already.

And guess what? I’ve just found out that the London Electricity Board was privatised in 1990 and Battersea Borough Council abolished in 1965. I hope none of my gas escapes.

When I drag myself back to the 21st Century, the ‘switch’ experience continues to be difficult, complex, confusing and distressing:

- you are required to find all your previous bills

- you have to unbundle gas and electricity

- calculate the rate you are being charged by month, by cubic feet and by kWh

- take into account any rate changes there may have been

- get your head around different suppliers and different tariffs called things like ‘Blue’

- recombine gas and electricity again

- commit to a long term deal

- agree to ‘fixed tariffs’ which, as I can testify, aren’t fixed at all.

Did I tell you switching is a difficult, complex, confusing and distressing experience?

Still don’t believe me? Here are three comments from the British Gas website. You can skip these if you like or you can read 338 more here:

“The account took a long time to set up. (approx 3 months) so instantly we had a backlog of debt. They underestimate the amount you should pay so they look good at the start then up the amount you have to pay. The meter readers they use consistently take the wrong readings and upload them so the figures are wrong! The address we are registered at is wrong. I have tried to get them to change it but with no luck. We should be 1F2 or flat 4 but instead we are down as just 1 (they are downstairs from us!) so any mail they send goes to the wrong address! Then when trying to see a simple breakdown of energy used seems to be hard too!”

“Having just learned of another exorbitant price rise I wanted to find out what tariff I am on in order to review this and hopefully save money. The information on tariffs is confusing, contradictory to my energy bills and horrendously overcomplicated. The website is continually crashing and I cannot even view historical bill information. I was looking for a more competitive tariff with British Gas but I am now going to change out of principle”

“I struggle to get on my knees to read the meters so have to ask my grandsons to do it. I have now been told my next bill will be over 14,000 pounds and on saying there must be a mistake my grandson has told me I have put the readings in the wrong way round. I am unable to change the readings on line and now I am really worried about about my next bill as my pension would never pay that large amount unless they give me a couple of years”

Here are various measures which need to happen in the household energy market, for all of which I will compare the customer experience to that of filling your car with petrol:

1. More consumer choice

As you will see below, consumers have much more choice in the purchase of petrol for their car than gas for their home.

How is this? Can the situation be improved?

Would more choice in the market increase competition and drive down prices?

I think it would.

How?

2. Modernise the equipment

The meters in the household energy business are totally inappropriate in the modern era. In fact they are a disgrace. When I put gas in my car, I can see exactly how much I am putting in and exactly how much I am paying. Why not for the gas in my home?

I do not just want better equipment. I expect it. Specifically, I want a digital display, ideally an app on my iPad, telling me exactly how much I am using on a per unit basis and a contemporaneous rolling total of exactly how much I am spending as my house is warmed.

This antiquated equipment makes it harder for customers to monitor how much energy they are using and how much they are paying for it as they go.

Smart meters‘ have been invented. Why haven’t I got one?

3. No more bundling of products

Why do energy companies encourage me to bundle gas and electricity from one supplier? And why does my new supplier have a bundle which includes phone and broadband?

Is this in my best interests? The hell it is.

By the way, my new supplier is Utility Warehouse, known in our house as Futility Warehouse. If you query your gas bill with them, they cut off your phone. Nice.

Much better to have electricity people sell you electricity and gas people gas. This is much more in the consumer interest. Domestic energy suppliers should not be allowed to con you otherwise. Take it from me, Mr Davey, they bundle these things up to make it difficult for you to switch not easy to switch. It is a cynical, deliberate ploy.

Do the petrol stations bundle their products? Do they tempt you with offers of cheaper petrol in you pre-buy your engine oil at the same time? No they don’t. Nor should they.

4. No more fixed payments

When you pull in to a petrol station to fuel your car, is there a system where you are trapped into going back to that place? Of course not. The next time you fuel your car, you can go wherever you like. The same should apply to household energy.

You wouldn’t forward buy a year’s worth of petrol for your car, would you? You have no idea of the exact amount or when you will need it. There are too many variables – just as there are at home (the weather, Billy staying with his girlfriend, Sally’s juicy guitar, Granny coming to stay). The same applies to household energy.

Annual deals are a con. They are a way for the suppliers to make their product more complex and confuse their customers. They are not in the best interests of the consumer.

For products as socially important as domestic energy, these fanciful ‘lock in’ devices should be banned by law.

5. More transparency

As I drive down the road, the prices charged by the petrol companies are broadcast loud and clear on a large digital display on the roadside and, as I continue my journey, I can compare the price offered by one petrol station to that offered by the next.

This is how an open market works. Why can’t my household energy supply be like this?

With every bill sent to every customer, there should be a requirement for like-for-like price comparison costs from all the suppliers in the market. This way, customers will be able to see what they would have paid with a competitive supplier and have the choice to switch for next month. Yes, I said switching should be made easy on a monthly basis.

Domestic energy suppliers will say it takes a week or two to switch because they have to send someone round to read your meter. This is another con. If they had up-to-date monitoring equipment, they could take a reading from a central monitoring point. They have the technology to do this, but it is in their interests not to pay for or install it.

6. More integrity

At a petrol station, you help yourself to petrol, you pay and then you leave. You have the power to go where you like next time. In the household energy market, the power is in the hands of the supplier not the customer.

As privatised businesses, owned by shareholders, energy companies have a duty to maximise their profits and they use very trick in the book to do so.

Do they care about the old and the needy? Of course not. Why should they? In the event of any queries, they cut off your phone.

It should be as easy for you to cut them off as it is for them to cut you off. This is very important.

7. Easier to switch

Yes, there are costs attached to the modernisation programme I have proposed. And the energy companies will not like it. But surely transparency it is a price they must pay for the licence to provide such important public services?

Price comparison sites, many of whom have floated or been bought at vastly inflated valuations, will also complain. Frankly, if switching was made as easy as it could be, there would be no need for these sites at all. And they know it.

Believe me, if the proposals I have outlined above were adopted, particularly if all the prices in the market were wholly transparent, prices would come down.

Conclusion

Mr Miliband may not realise this but one benefit of privatising businesses is that used to be nationalised is that they have to operate in a competitive world.

In any market, competitive forces are not restricted to just one sector. Once consumers get used to behaving in a certain way, they will demand the same level of service across every aspect of their lives.

Whenever the times comes that buying gas and electricity for your home is easy as it is to buy petrol for your car prices will come down, customers will be more satisfied and the world will be a better place.

Phew. This must be my longest post.

I’m gassed out.

 

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