Spoilt for Choice?
I've recently found myself on first name terms with a couple of friendly folk at the call centre of my home energy supplier. And not because I'm tragically unable to turn off from the day job when I get home, or because I'm scraping the barrel to get the best out of my "friends and family" telecoms deal with BT.
No, my problem is bafflement with my latest dual fuel energy bill, and it seems I'm not alone.
As it transpired, the cause for my confusion was a series of reconciliations caused by the embarrassing fact that I've seemingly been misreading my old electricity meter for the last couple of years. But that's not to distract from my point, which is that the business of buying energy is not a straightforward task.
First up, the tariffs. Take your pick - there are more than 400 apparently now available, largely from the 'big six' energy suppliers. Some depend on your chosen payment method, whether you want online bills, even where you live.
And then try weighing up customer service and other supposed differentiators from amongst the main suppliers who heavily advertise in all known media to persuade you they're the supplier for you. It's far from easy.
Of course, there's no problem per se with choice, which allows consumers to select the supplier and tariff that best suits their energy usage needs and preferences. But too much choice, and in particular confusion as to how to compare one offer against another, and many of us lose interest or simply give up.
Now energy regulator Ofgem has stepped in, and as part of its long running Retail Market Review has suggested energy companies need to offer standard, simpler tariffs to re-engage consumers. With its December consultation on domestic market reforms just closed, we can expect its findings to follow soon.
Ofgem hopes to inject real competition into the domestic energy market, and is looking for the 'big six' suppliers to respond positively. It warns however, that following the consultative process, if Ofgem considers the reforms do not have a realistic chance of addressing the concerns identified due to industry opposition, then it will consider a referral to the Competition Commission.
So what are these earth-shattering proposals? Well, Ofgem wants suppliers to have 'at a glance' tariffs, with a compulsory regional standing charge laid down by Ofgem and a single price for each unit of energy used set by the supplier. It wants one standard tariff per payment method, (direct debit, pre-payment meter or credit transfer) for both fuel types, giving six in total for each company - a long way from the hundreds currently available.
For more energy savvy consumers, Ofgem is proposing that suppliers can still have as many 'innovative' contracts as they want, but most will be fixed price and when the deal comes to an end if the consumer does nothing, they must be returned to a standard tariff. Ofgem believes this is a major reform that reduces confusion, increases market transparency and helps customers understand their energy bills more.
It would appear our politicians have now also caught the scent of a popular campaign with which to align themselves, as the Energy and Climate Change Select Committee launched an inquiry to investigate how consumers engage with the energy markets and to discover how 'energy literate' the average member of the public really is.
In tandem with these proposals, Ofgem last week opened another consultation, on detailed (and complex) proposals to force the 'big six' suppliers to make available to independent suppliers, through mandatory auctions, a sizeable chunk (25%) of the wholesale power which they generate themselves. By doing so, Ofgem aims to improve liquidity in wholesale power market - which in recent times has languished behind other commodity markets, notably gas, and some other European countries. Ofgem hopes that improved liquidity will improve trading conditions not only for the independent suppliers (who typically don't have access to their own generating plant) but also to independent generators, and encourage new entrants.
Of course, the ultimate aim of all this market reform and consumer engagement is to improve competition amongst suppliers, and in so doing encourage innovation, customer service and, of course, downward pressure on prices.
This focus on the supply side is all well and good, but what about the demand side of the equation? The characteristics of our wholesale energy markets are such that what our energy suppliers really like are customers with large and predictable demand profiles. So what would happen if large groups of consumers could get together to purchase collectively?
Aside from taking away a lot of time and trouble for each participating consumer, the idea of acting together in a consumer version of collective bargaining is a good one.
Collective switching as this phenomenon is known is the new buzzword in consumer energy circles and a concept gaining momentum. Several campaigns are under way, all looking to replicate a campaign organised in 2011 by Dutch collective bargaining agency iChoosr, which has so far successfully switched 250,000 consumers to a better deal.
Champion of the UK consumer, 'Which?' started its 'The Big Switch' campaign in February, which aims to help households get better energy deals through a reverse auction, and is perhaps a sign that things are perhaps about to change here in the UK. Commentators predict that with a large number of consumers banding together, not only will the 'big six' have to be more competitive, but new providers will enter the market and begin to chip away at their 99% domestic market share.
In the meantime, I'm off to the opticians to get some reading glasses, and my friendly supplier has tactfully sent me a helpful little guide telling me how to read a meter. I think it's time to get a smart meter that can read itself.