Legislation on energy prices?

I work in what is known as the retail side of the energy industry. Essentially the sales and customer service operations that directly interface with the customer. I am a member of the Utilities Scotland collective.

For those of us in this part of the industry, yesterday’s statement by the Prime Minister came as something of a shock. He said: “I can announce… that we will be legislating so that energy companies have to give the lowest tariff to their customers”. However the BBC later reported “the Department for Energy said it was looking “at all options” to help customers get the best tariff.”

Certainly my company was not aware that this was coming and the same applies to colleagues elsewhere. I watched this announcement on C4 News last night complete with Gary Gibbon’s scathing analysis. He has expanded on this in his blog , ‘Why Cameron’s energy promise has a whiff of desperation’. Gary asks the questions that went through my mind:

“How do you decide what is the best tariff for someone, and bring the weight of the law to bear on a company to provide that tariff? Hardly anyone has a smart meter. How can a company know what is best for you, your off-peak usage, your energy usage in a cold spell? Competition could easily be stifled if all suppliers felt under legal pressure to provide a minimum tariff. Oh, and for good measure it’s probably illegal under EU law.”

What it does represent is an astonishing recognition by a Tory Prime Minister that the market has failed. This is state intervention big time. No wonder some Tory MPs have already described it a ‘soviet style’ intervention.

So what about Labour’s response? Apart from pouring scorn on the confusion Caroline Flint said:

“We need a more competitive market. Six companies dominate 99% of the customer base in the UK. So what do we need? We need a tougher regulator, and we have announced that we would abolish Ofgem and have a tougher regulator. We need transparency, so we can see when companies say ‘We can’t do this because we need to invest’, whether what they are saying is right. And we need to know that when wholesale prices go down they pass on those cuts to the consumers.”

So we have a Tory PM wanting state intervention and Labour shadow minister wanting more competition. Truly the political world is turning upside down!

As someone who manages the interface with customers on a daily basis, I remain to be convinced that customers want more competition. They are just confused and bewildered. We spend hours with customers unraveling the mess they get themselves into over constant switching, but others have just given up. So I get the point about regulation, even if I question how it will work.

We also need to understand that margins on retail energy are not large. Ofgem’s latest calculations show that the rolling average net margin for a typical, standard tariff dual fuel customer is approximately £45. This is likely to rise with the recent price increases to around £65. Not huge when you consider the average household bill is £1310 p.a.

Personally, I would just scrap the market all together and have a regulated price. That would take all sorts of costs out of the industry that customers have ended up paying since privatisation. But I suspect that is a step too far, even for our new, soviet style, interventionist PM!

Mike

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