MSE News: Guest Comment: The problem with energy firms

A._Badger

backfoot wrote: »

No sarcasm at all, just pointing out that you had grouped the ESI and Gas Industy together with other state owned corporations and assumed they were all inefficient.

When challeneged on the specifics you just repeated the mantra.You couldn't point to any real problems with the Industry related to this thread.

Not surprising because you clearly don't have any experience of the organisations concerned. For some reason you give a plaudit to the National Grid as being exempt from such criticism, pre privatisation.

Aaah but, the National Grid didn't even exist as a separate entity then.

What basis do you have for saying that the transmission element of the CEGB was any more efficient than say, one of the 12 Area Electricity Boards?

Sounds to me like you are making it up as you go along.:rotfl:

And it sounds to me like you haven't the experience of having lived under these regimes. Which, of course, is precisely what you admitted in an earlier post.

So why don't you just cut the juvenile smilies and post some sort of coherent argument for why you are right, that a centralised, state-controlled energy supply system would solve our problems - and that most of the rest of the rest of the world is wrong for having dismantled them.

It's a rainy weekend. I'm sure we could all do with a laugh.

A._Badger

markharding557 wrote: »

I don't think nationalization is the answer either but a strong,strict regulator is and that means one with the power to impose price regulation.
ofgem and who ever are impotent and useless.

Agreed, Ofgem is a joke.

The real problem lies with the political class that tries to fob us off with pseudo-regulation, while pursuing its own ends.

None of the regulators established post-privatisation has done anything even remotely approximating a competent job.

A cynic might conclude they were never meant to.

Ben84

I still think privatisation was presented in an irrational way with reasons that are hard, maybe impossible to rationally defend.

The conservative government promised they could run the country and won the election, but strangely enough claimed they could not run an efficient telephone company or gas company. Private industry had to do that, the reason seemed to be competition. Aside from the concept they would fight against each other in price wars, it was not explained how privatisation, which adds extra costs (profit for investors) and changes the purpose of the organisation entirely (a whole other subject, but not without important points) was going to help.

A lot of privatised industries have started billing in confusing ways that obscure the costs to appear cheaper and making extra unexpected charges for all kinds of things. There has also been not so many price wars on some products, suggesting sometimes direct industry collusion on prices or just a trend to move prices as a group. As for value for money, the service from quite a few of these companies is terrible. BT is a shameful mess and I would defy anyone to call their customer services and find otherwise. The line quality is bad, sometimes terrible and the entire experience seems to be a showcase to the latest call queuing and call transferring systems. It doesn't matter which department you call, it's the wrong one. I can think of multiple times I spent two or more hours on the telephone to them, mostly listening to music, occasionally talking to someone and by the end of it just hanging up the phone, having got nowhere and not one of the people I spoke to having managed to set in motion some kind of system to solve the problem I was having. Sometimes by that point I was on my second loop of the same departments, all of which claimed I needed to be transferred. The efficiency of the customer services is often terrible and largely is the result of companies using very low paid workers in other countries, whose time is clearly considered worth so little that any investments in efficiency are not worth making.

Then there's the trains. Buying an affordable ticket is hellish. You can't just go to the station any more (unless you want to spend all your money), it has to be done online with different companies searching different times and routes. It's easily as much work to find a cheap ticket from Cambridge to London as it is to find which gas and electric supplier is the cheapest.

I could rant on and on, but the basic trend is that the value for money can be very poor and I think it's a result of privatisation. So much of what's available is the service equivalent of a big shiny box that promises a lot, but turns out to be half empty when you look inside it and missing bits you really expected should be there.

Inefficient seems to be defined in the Tory dictionary as "situations where people don't make money", it doesn't seem to have any connections to the quality of services or the efficiency of staff time. The less you pay people the more you can waste their time, while customer's time is often considered totally free and can be consumed with abandon. These however are the 'efficient' new industries. With so many of the big companies in each market playing tricks with pricing and having stripped back important services like customer services to almost the point of being useless to save money, but spending hugely on advertising and attracting customers, the average quality of product in each market has degraded a lot. Companies with good products (from the customer perspective!) struggle to compete.

magyar

Cardew wrote: »

As pointed out in the article, it is the link between the Generating and Distribution Companies(e.g. Centrica/British Gas) that is a major problem.

It is a valid argument that the Distribution companies themselves do not make excessive profits. IIRC BG’s profits in recent years has varied between a loss on every customer to £60 pa for each customer.

However that said, if BG are paying their parent company Centrica ‘over the odds’ for Energy it makes a mockery of their claim to have modest profits.

But this is the flaw in the original article's argument. British Gas retail supply business has - by law - to be separated from its generation business and both of these buy and sell on the wholesale market.

So BG Retail are just as likely to be buying power from SSE or Scottish Power as they are from Centrica to sell on the their customers.

And the other flaw in the argument is that whilst there are only six big supply companies (and yes, they all have generation businesses) there are also other generators (e.g. International Power, Drax, Intergen) selling into the wholesale market, plus dozens of licenced electricity trading houses who buy and sell wholesale electricity.

So I fail to see how separating them out further would help.

I completely agree with you on the social tariff point: give poorer people money via regular benefits rather than distorting the market.

Re: green benefits, I don't disagree that it should be made clearer what people are paying - but contest totally it's as much as the DM/Lawson claim. As to whether or not it's right to pay for renewable electricity, well that's a different point but to be honest if not renewables we'd be paying for something else because we clearly need new generating fleet, so it's not like you could scrap it altogether.

I think the problem is still lack of people switching. I switch about twice a year: using Quidco etc. to get money back, getting onto the cheapest tariff at all times.

I know people who STILL have never switched from their original supplier. Madness.

Whilst churn rate remains so low, companies will never have incentives to compete so keenly on price.

magyar

As an aside, I do think there is a huge gap in the market for a 'Ryanair' equivalent in the electricity supply world. Ryanair keep their costs low by being utterly ruthless about their overheads.

I know at least one of the big six extremely well and can say that there is massive inefficiency in terms of staff costs - the wages are poor but they have at least twice as many people as they need.

Other things: I have an 'online' tariff and I am meant to deal with my supplier completely via email. In practice if I ring them up they treat me like any other customer - great from my perspective but this is someone being paid to work there. If I were my supplier, I'd be saying "no, you get a cheaper tariff because you're online-only, so you have to stay that way".

And GET THE BLOODY BILLING RIGHT! The industry still has hugely inefficient billing systems most of which date back to the old Regional Suppliers. At the end of the day, why do we care about customer services? It's usually because we got an incorrect bill. I would far rather have no excuse to ring up my supplier than to get an incorrect bill which was efficiently sorted out.

magyar

A._Badger wrote: »

A cynic might conclude they were never meant to.

I do agree, and I have a good example. When the electricity industry was deregulated, the relevant companies made it HUGELY complicated to switch suppliers.

You would think that it's simple enough to do - after all you get billed per meter, so a meter number should be able to uniquely identify a customer.

However in practice over 10 items of information have to be transferred between the two companies in order for switch to work, which is why there are so often billing problems. This does not happen in the telephone industry - when did you ever get billed for someone else's phone calls?

It would have been simple enough for a tough regulator to insist on a better system, but they never did. As a result, people think switching is a very hard thing to do, and so they rarely do it.

Cardew

magyar wrote: »

I think the problem is still lack of people switching. I switch about twice a year: using Quidco etc. to get money back, getting onto the cheapest tariff at all times.

I know people who STILL have never switched from their original supplier. Madness.

Whilst churn rate remains so low, companies will never have incentives to compete so keenly on price.

For someone who posts such sensible points, I really cannot understand your logic in the above quote.

With your frequent switching you are 'making' say, £100 a year. Where do you think that £100 comes from? Obviously it is an overhead that is passed on to all of us customers in higher bills

Of course it is not just the customer's £100 cashback, there is the additional commission paid to Quidco and the comparison websites.

Then there is the costs for the additional staff required to handle all the switching - again these passed on to customers.

Yet you feel that increasing the churn - incentivised by 'cashback' - will benefit customers??

Whilst nobody is criticising people who switch frequently, if every customer followed your practice - as you seem to advocate -then it would obviously add £100 plus extra costs (say £200 pa) to every bill.

To my mind the commission paying comparison websites and Quidco etc are parasitic and an unneccesary overhead.

magyar

Cardew wrote: »

For someone who posts such sensible points, I really cannot understand your logic in the above quote.

You have a fair point, but the point I was trying to make is that I consider I'm making money from the people who don't switch. I'm well aware of what I'm doing. Maybe I'm leeching, but I'm not doing anything which is unavailable to anyone else.

If an average annual profit per year is ~£100-150 or so then it makes perfect sense for a utility to pay £50 or so to get a customer.

However if everyone switched regularly then I would suspect that margins could be pushed down to something more like £50-80 p.a. in which case it would be barely worth a company paying more than £5-10 to get a customer, and probably not worth Moneysupermarket etc. even doing it.

The very existence of MS/Quidco and so on illustrates how much cash is on the table in this industry.

magyar

By the way, I would add yet one more thing:

The profits from retail customers may be regulated by a fairly weak regulator in Ofgem, but they are at least regulated.

The profits from businesses are far less tightly-regulated. This is fine for the huge industrials who use loads of power, because they can afford to employ people to manage their energy contracts and keep margins low. However small businesses often overlook their energy bills (because they're busy running their businesses...) and so get hugely ripped off - margins in the SME space can be way over 20% or so.

Whilst this doesn't directly affect the rest of our bills, this is obviously something which ultimately gets passed on in terms of higher retail costs that those businesses have to charge and means that small businesses are disadvantaged in respect of large ones.

I'd therefore like to see small businesses e.g. those with an annual turnover of <£1m p.a. being subject to the same tariff regulation as retail customers.

A._Badger

magyar wrote: »

It would have been simple enough for a tough regulator to insist on a better system, but they never did. As a result, people think switching is a very hard thing to do, and so they rarely do it.

I agree - but, in fairness, it can be hard to switch, for just the reasons you suggest. I once made the gross error of moving to npower - an experience so time consuming and horrible due to npower's ineptitude, that I truly believe the company should be compulsorily wound-up - an opinion reinforced when I read this forum and see how others have suffered.

No regulator worthy of the name would have allowed the shoddy service and nakedly abusive multiplication of impenetrable tariffs British consumers have to suffer.

And no politician worthy of a vote would have allowed the regulator we have to remain in office.