Public interest and scrutiny has focused once again on the energy sector in the wake of GB Energy Supply going out of business.
Concerns are mounting over the sustainability of smaller suppliers as temperatures plummet, and these come on top of delays to the smart meter rollout, increasingly loud threats from politicians about intervening in the market, and changes being instigated by the regulator following the Competition and Markets Authority (CMA) probe into the sector.
With these issues all simmering, the need for the consumer voice to remain prominent in the debate is paramount – so believes Which? executive director Alex Neill.
Utility Week meets her at the consumer group’s temporary offices next to London’s Paddington station. Much like the energy sector, its HQ is undergoing something of a change, with the renovations to its Marylebone base due to be completed early in the new year.
Its current home, which is in the same building as a new renewable energy firm, feels like that of a start-up, with a coffee bar, free-to-use beer tap, and a healthy snack stall all on the same floor.
It all creates a relaxed atmosphere – something that is very much at odds with the tensions within the energy sector today.
We find a meeting room, decorated with wallpaper designed to make it look like a library, and tackle the hot topic of the morning – price freezes. SSE had just announced it was freezing its prices, and a number of other retailers were about to follow.
Neill sees these moves as something of a mixed blessing for consumers, but gives SSE credit for being the first out of the blocks.
“Will Morris [group managing director, retail at SSE] has got a commitment to do the right thing and going first is the right move. If you’re second, third or fourth, everyone gets bored of it.
“It is nice that they are not going to put up prices but the standard variable tariff [SVT] is still the most expensive tariff. In some ways, it’s not that helpful because it is giving customers the message that they’re alright to stay on this tariff as opposed to that they should be moving.”
Neill is obviously frustrated about some of the manoeuvres of energy suppliers. She acknowledges that there must be a rationale for them to announce price rises and freezes when they do, but she is scathing about the “herd mentality” of the major suppliers.
“What is worrying is the pack mentality, with one after another, after another – all with very similar reasons. The situation is, prices do have to change but in this market people just don’t think it’s competitive enough. This all adds to the same problem, where customers think there is no point in moving.”
The solution to this could come in the form of the CMA’s remedies from its two-year investigation into the market. Neill is hopeful that the implementation of the remedies will lead to a rebuilding of trust and a reinvigoration of competition in the sector, but she is not totally convinced that it will.
“We’re not quite in a place where we should abandon hope in the market. We do believe in the market but there is a problem with competition in energy – no one has got it right so far.”
Neill adds that “reading between the lines of the CMA report”, it has a similar attitude towards the sector and it is saying “this is the last roll of the dice”.
Leaning forward and with a slightly sterner tone of voice, she targets the next comments at the retailers. “It will all come down to the suppliers. If in five years’ time we’re still in the same place and still getting the same outcomes, then [government intervention] will be the right result and suppliers will only have themselves to blame.”
Chief among her worries is the attitude of the suppliers themselves. This is what prevents her hope for the sector from blossoming into belief. Neill highlights a poll that took place at the Energy UK annual conference, in which the audience – made up of industry representatives – was asked who they thought would benefit most from the CMA’s remedies. Neill said she was shocked to discover that 45 per cent of the audience stated that active switchers would benefit most from the CMA’s remedies, whereas only 11 per cent thought non-switching customers on SVTs would benefit the most.
“Having the very people responsible for engaging the market not thinking that it is going to happen or going to make a difference is very worrying,” she says.
According to Neill, a major area that indicates the lack of interest on the part of energy retailers with engaging their customers, and of the lack of competitive forces in the sector, is around customer service and in particular, billing.
The high-profile billing problems the major suppliers have had in recent years, from British Gas, through to Npower and Scottish Power, come partly from having fragmented legacy systems dating back to the time before privatisation. But smaller newer suppliers have also had billing issues.
“There are always going to be IT problems, but in the energy sector it shows lack of pressure on them to sort it out before it gets to disaster stakes. If another organisation wasn’t able to send you a bill, it would be a priority to get that fixed. In energy, it shows that is not where the priority is.”
Neill argues, as a consumer watchdog would, that customer service needs to improve, as does the competitiveness of the market. This is all the more urgent because the new government has been making sounds that it is eager to intervene in the market.
Neill understands the sentiment from prime minister Theresa May, but goes against the usual tone of Which? and urges caution, saying the suppliers, the regulator and the market need time to try to improve the situation themselves.
“The top actors, all the way up to Theresa May, are seemingly very keen to have some sort of intervention. So far, these seem to be either things people said in the past were not a good idea or go against what the CMA said.
“We’re in an odd position to be saying we are not sure government intervention at this point is a good idea. There needs to have been time for them to do it themselves.”
The Which? executive director thinks the government’s noises about intervention could all just be a way for politicians to keep the pressure on the sector to make the essential changes to improve things for customers.
She is full of praise for the business and energy secretary Greg Clark, calling him a “thoughtful person”, and states that government rhetoric could just be “grandstanding”.
Yet she warns the sector that the threats should not be taken lightly.
“If in five years’ time we find ourselves saying the same old things, we will probably be in a different world with price regulation.”
One of the biggest drivers of change is expected to be the rollout of smart meters across the domestic energy market in the UK. Two-thirds of the Data Communications Company (DCC) networks are now up and running after repeated delays, although the northern region is not live yet.
Neill’s main concern is not that the programme itself could fail to meet its targets because of the DCC delays. Instead, she worries about much wider impacts.
“I think it ultimately threatens the success of the CMA [remedies]. People have missed this,” she warns.
“The CMA puts a lot of its hopes of improved competition in the market on the fact that everyone has a smart meter and smart technology, which pushes innovation. All of that stuff feels so far away at the moment.”
On top of that, the early smart meter rollout is now beginning to see its first wave of complaints coming in, as the early adopters come up against unexpected problems.
Primarily this revolves around switching. Neill says Which? is receiving calls from smart meter customers who are having trouble switching supplier, or have been told they need to pay to replace their smart meter so they are able to switch and retain the smart functionality.
Switching brings the conversation to another area in which the CMA is keen to see change: price comparison websites (PCWs). The CMA called for the removal of the whole of market requirement for PCWs, reinstating their ability to negotiate exclusive deals with suppliers.
Neill, who acknowledges Which?’s own comparison site offering, says this is another one of those remedies that will come down to the execution.
“The thought with it is, if you get some big PCW to negotiate special deals, you may see some downward pressure that doesn’t exist at the moment. The downside would be from a consumer perspective that you may have to visit more than one website to get the best deal.”
She also states that PCWs do not currently show the entire market, sometimes due to the way results are presented, whereby commission-paying deals are positioned higher. But, more importantly, Neill notes that collective switching offers are not included.
Removing the whole of market requirement from PCWs “makes it very clear” they are not showing you the entire market.
However, out of all the CMA remedies, Neill states this will be one of the last to come forward, because of its controversial nature, and the need for other more pressing remedies and action to be completed first.
She views the energy sector in the wake of the CMA investigation and the new government as a work in progress – much like Which?’s own offices. The plans have been set out to make the sector more competitive and fairer for consumers, and Neill is now keen for these to be followed through, not only to the letter, but also in terms of the spirit of the remedies.
Failure to do so, or changing the plans part-way through the restoration process, could lead to flaws, although not as serious as if the suppliers do not take them on board and embrace them.
Rounding off the interview, Neill says her message to the sector is to engage with customers, find innovative ways to keep existing customers and deal fairly to win new ones. “Do not rely on the regulator or government to tell you to do something,” she states.
Grabbing a coffee from the stall outside our meeting room, she concludes by reiterating the risk suppliers run by failing to change their ways – the return of price regulation.