Breaking News – Bears are doing a number 2 in the woods

And apparently, according to the Competition and Markets Authority (CMA) the large energy supply companies are doing a number on their most loyal customers as well. Working in the energy markets sometimes gives me a déjà vu feeling; haven’t we been on this merry-go-round before?

Sadly; yes. None of the information the CMA report published today has come out with is necessarily earth shattering or new. In fact, if anything, they have put as conservative a spin on the pretty damning numbers as is possible. They have calculated that had The Big 6 energy suppliers placed all of their existing customers on their (note the preposition here) best available tariffs then they would have taken £1.2 billion pounds less from our collective wallets last year and these consumers would have saved £160 per annum. In actual fact; if you did the calculation not against their best deal on the market but rather against the best deal in the market then that £1.2 billion number would balloon north of £2 billion per annum and the average saving closer to £260/annum (see point 3 below). As the saying goes, a billion here, a billion there – pretty soon you are talking real money.

It is difficult to know what the CMA will do next given that they have admitted that the whole problem with the energy market is that the Big 6 energy supply companies exploit the fact that consumers are reluctant to change. Why there is this reluctance to change is a question that we ask ourselves pretty much every day? Let’s examine the facts:

  1. The electricity and gas you get out of the pipes and sockets at your house are the same stuff no matter who you buy it from – it is completely homogeneous. In fact you never even see the product; if you did that would probably be a cause for panic and a prompt phone call to the fire brigade!
  2. In poorer households it represents up to 10% of household expenditure and given that there is no qualitative aspect to it then logic dictates you buy it on the basis of price. It probably equates to the cost of a middle income families annual holiday and you can be sure that they shop around for the best deal on that.
  3. Somebody needing electricity and gas who uses OFGEM’s exact national average consumption of 13,500kWh of gas and 3,200kWh of electricity every year will save over £260 if they move from a standard variable tariff with the Big 6 (this is 70% of households out there which probably means you Sir/Madam if you don’t know!) to the cheapest dual fuel supplier in the market.
  4. When you switch supplier you will not be cut off. Suppliers can’t go running around arbitrarily cutting people off in a fit of pique because you left them…. OFGEM take this sort of stuff pretty seriously as the last thing they want is for a “British supplier cuts-off pensioner and causes hypothermia” headline to unfold across the nations screens during the 10 o’clock evening news.
  5. We repeat – you will not be cut off. (It is possible for a supplier to cut you off for non-payment of your bills but this is highly unusual and is in no way linked to switching but rather to paying your bills.)
  6. Switching energy supplier takes about 10 minutes of your time. Maybe throw in an extra 5 minutes to read your meter and submit the readings when you are asked to. So 15 minutes all up. Name one other activity that will add £260 pounds-ish to your disposable income in 15 minutes. Thought not.
  7. According to the Which Customer surveys for energy companies, the Big 6 occupy 6 of the bottom 7 slots for customer service. So consumers can’t be staying put with these companies because of the great customer service they experience can they?

“Overall, our provisional view is that the overarching feature of weak customer response gives suppliers a position of unilateral market power concerning their inactive customer base and that suppliers have the ability to exploit such a position through their pricing policies”

The solution to the entire broken retail energy market, which the quote above from the CMA can be interpreted as suggesting is the status quo, is for householders to switch away from the Big 6 in their millions and then continue to switch every year (back to the Big 6 if they want to because by that stage the Big 6 will have had to completely change their business model to one that focuses on value rather than exploiting apathy). Unfortunately, if history is anything to go on, that simply isn’t going to happen. No matter how many times one takes a horse to water (or in this case produce a report urging that consumers take action and switch energy supplier); ultimately the decision to drink (or switch in the case of the energy consumer) is in the gift of the horse and the horse alone.

The CMA has more teeth than OFGEM, who by way of an aside come in for a bit of a shoeing in this report in terms of how positive the CMA believes their interventions have been, but whether or not they can re-wire the market to work better without inadvertently short-circuiting the whole edifice and making it worse is another matter altogether. If you and I and our communities and neighbourhoods are not prepared to take the actions necessary to help ourselves then there probably isn’t much an external body can do to fix it. So come on Britain – go take your switching medicine and get on the road to recovery.

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