Utility Week

Uberflip 17 01 14

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Comment Chief executive's view Stephen Fitzpatrick, founder and managing director, Ovo Energy We must increase competition There is a simple solution to the problems inherent in the energy sector – we have to increase competition and our regulators have to adopt a tougher stance, especially against the big six. A s the founder and managing director of a rapidly growing energy company, I clearly have a vested interest in the ongoing controversy that sees energy companies periodically surface at the heart of the political debate. Never was this more true than when I took part in the Energy and Climate Change Select Committee hearing in October last year. The government constantly dabbles in matters 'energy', attempting to correct the wrongs that pervade the sector. The big six were central to its plans for Electricity Market Reform (EMR), but a policy designed with heavy input from the energy giants was never going to work. The reforms may incentivise big companies to build big power stations, but it was never going to reform the electricity market. In the meantime, Ofgem's Retail Market Review aimed to tackle the issue of competition. It did not manage to address the uncompetitive practices of major suppliers. It did not benefit from the same high profile, nor was it prioritised in the same way as EMR. Instead of taking the problem by the scruff of the neck, the regulator fiddled with the minor problems. And instead of redressing the main challenges and flaws, the buck was once again passed to consumers by advising them to shop around. Ofgem's own data shows that four out of five people don't switch and over time the willingness to change supplier diminishes. Ofgem's recommendation to look harder for better deals is clearly not sufficient when it itself admits that 80 per cent of people will not switch. If you judge a market on the strength of its regulator, then you may say that the energy sector is fairly weak. There are serious problems that have been ignored for too long; it is not sufficiently regulated, and that has led to a lack of proper competition. That was why Ed Miliband's pledge at the Labour Party conference to freeze energy prices provoked such interest from the media. It left David Cameron with a tough decision to make. On the one hand he could crack down on energy companies and in the 6 | 17th - 23rd January 2014 | UTILITY WEEK process appear anti-business – something the sector was at an all-time nadir following that would go against his general political further price hikes. This has to stop. beliefs – or he could fuel the fire, protect Competition is key to the future of energy these companies and wait for consumers to companies and winning back consumers' air their anger. trust. We are in a situation now where this Labour's move resonated with a disen- is a market devoid of competitors. We must chanted public, who felt they had been pay- encourage new entrants to the market to ing prices far higher than they should. But ensure a diverse sector that offers the conwhat does this really mean? What are the sumer a real choice. We can do this by not implications of what Miliband was pledging? charging significantly more or less than the Many in the industry do not believe it could actual cost of the electricity supplied. work, or at least have their reservations The big six run loss-leading tariffs to about whether it is feasible. attract new customers and then price new The question therefore must be: entrants out of the market. They what can we do? I have heard of will invariably raise their prices people flying the flag for nationagain – safe in the knowledge that alisation. The industry has not been only one in five of their customers privatised for that long, and in a will switch. relatively short period people have In this environment, how do felt the impact of their energy bills consumers know whether they are beginning to soar. It may appear getting a good deal? It's almost realistic in this atmosphere that the impossible to say, given longgovernment would be able to keep a term customers pay more to fund handle on prices and safeguard the "Under the introductory offers to the new consumer to a greater extent. customers. eye of the Those considering this as a viaSmaller companies such as Ovo regulator, ble option must bear in mind that run only cost-reflective ariffs. We t our infrastructure and our environ- the big six offer the cheapest feasible price ment are in a different state than have driven within the bounds of usiness. b they were 20 years ago. Given the their profits This is where Ofgem needs to numerous challenges, the governflex its regulatory muscle – by higher and ment would be no better at runcoming down on those compa ning the energy sector than private higher" nies that inflate their prices for companies. extra profit to the detriment of There is actually a simple solution to the their customers. problems inherent in the sector. We have It has the power to punish these bad to increase competition and our regulators practices. It has the ability to impose severe have to adopt a tougher stance. The big six consequences on those who charge custombenefited from large customer bases in the ers too much. It needs to do more to put an wake of privatisation. They did not have to end to what is currently taking place in the survive by being more efficient or by offering energy sector. But as it stands, it is not doing good customer service and value for money. enough. Now, this situation has become worse. It may seem that the energy sector is a Under the eye of the regulator, the big six tunnel with no light at the end of it. This is have driven their profits higher and higher, not true. There is reason for optimism. But all at the expense of consumers, who have it will be a long journey to get to the stage now not only given up their hard-earned where the big six appreciate their custommoney, but also their trust. By the time I ers. If there is a light at the end of the tunnel, attended the Energy and Climate Change expect smaller competitors to be the ones Select Committee hearing, the reputation of shining it.

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