Coffee House

How to disempower the Big Six energy companies

22 March 2014

I believe in free markets, but there are some markets that don’t work properly.  Where competition has not prevailed in favour of the consumer. Where customers are too weak, companies too strong and choice too constrained.
One such market is energy.  Just six companies control 98% of household gas and electricity supply.  British Gas accounts for over 70% of all gas customers. In energy the regional monopolies that existed before privatisation largely continue to this day.  If you’re reading this and live in London I’d be willing to bet that for three out of four of you EDF is your electricity provider.  If you’re in Cardiff I bet it’s SSE. And if I’m right i’d also be willing to bet you’ve never switched and you’re paying too much. And the shocking truth is that over 60% of people have never switched provider. A happy fact for the Big Six.
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Since 2005 the average Big Six household energy bill for both electricity and gas has doubled from £600 to over £1,200.  While people are struggling to cover costs, between 2009 and 2012 the profits of the Big Six from domestic energy supply increased by £1 billion.
Ed Miliband talks a lot about this, and has promised to freeze bills. But we know from bitter experience that political intervention is not the answer. It rarely, if ever, works. The best politicians can do is keep the market open, so rip-off companies can be challenged by upstarts. The Government recently changed policy to encourage competition, simplifying tariffs. Since January, they’ve only been able to offer four tariffs. Under one circumstance they can offer a new extra tariff: for a group switch. That is to say: if a big enough bunch of customers break away and negotiate a better deal. This will be a tool which consumers can use to negotiate deeper savings.
I’ve worked in government, and I know how the theory goes: you try to create a fair playing field, then hope that competition will come. While Labour tends to place its faith on government to solve problems, Conservatives tend to place faith in people – and rely on those outside government to do the work, and to challenge the established order.
I’m now hoping to become a challenger.  My project is called The Big Deal, and the concept is simple – to find a list of people willing to sign up, on whose behalf cheaper energy prices can be negotiated. Buying in bulk means savings, whether you’re purchasing washing powder, toilet rolls or energy. As many people as possible sign up on the website or by phone and we negotiate as good an energy deal as possible on their behalf. Our members are in no way obliged to take the deal. And, of course, if we can’t offer a significant saving, no one will take up the deal.
To date no energy company has made use of this fifth tariff. Yet in a market dogged by customer dissatisfaction, that tariff is a symbol of consumer empowerment.  If The Big Deal attracts enough people we may create a first, and the market will be all the better for it.
Henry de Zoete was an adviser to Michael Gove from January 2010 to December 2013. He’s now co-founder of This is the first in what might be a series of ‘Start-up Saturday’ blogs – anyone starting up a business that may interest Coffee Housers is invited to email with a proposed blog. 


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Show comments
  • Square One Utilities

    To add to this article, SSE have recently announced a flattening of profits for the 12 months leading up to March 2015 causing them to close one of their coal plants. They have blamed this on increased competition from smaller companies. Could this be the start of a change in the market?

  • British Gas

    There are a number of incorrect claims being made here.

    Firstly, British Gas currently has around 40% of the gas market (not the 70% that has been cited).

    As a result of competitive pressure from smaller suppliers the major energy suppliers now account for around 95% of the market, meaning that around 1.4m homes are supplied by smaller energy suppliers. There are around 20
    suppliers in the retail market and 11 independent switching sites, with the
    smaller suppliers nearly doubling their market share last year and growing
    increasingly quickly.

    Collective switching can be a way of encouraging engagement and switching in the energy market. British Gas has been involved in ten different collective switching schemes in the past two years. In the recent iChoosr scheme this February, we believe that many of the suppliers used their 5th tariff slot to participate.

    There are no regional monopolies in the energy sector – consumers can choose their energy supplier across Great Britain and switching levels remain strong with over 2m households having switched supplier since October last year.

  • Bonkim

    Energy Cos vast powers to manipulate their revenue by varying standing charges, and also direct debits, etc. Getting refunds for excess charges arising from difference between supplier switch and meter reading dates is also rife.

  • saffrin

    How to disempower the Big Six energy companies?
    It couldn’t be easier. Hit them with so much red tape their profits sink, their shareholders sell and when they’re worth nothing, nationalise them

  • Frank

    If government got rid of all the green crap and had sensible energy policies, then we would all be better off. There is zero business case (let alone on safety grounds) to favour nuclear power stations – just an obsession with not allowing coal fired power stations. If we had clean modern versions of these (as in Germany) and lots of cheap and clean gas powered power stations, we would have diversity of UK sourced supply and very good value energy. Gas companies would then have to be cautious about stuffing the customer as the customer could always switch to a coal powered supplier.

  • david trant

    Government intervention rarely works, depends, afterall both the National Grid and the Gas transmission system, (Natural Gas) were built as a direct result of government intervention. In the case of gas not only was the transmission system built but the entire country was converted on time and on budget.

    Privatisation of energy has been a disaster, even this article pretty much admits it, but of course won’t go all the way, no wonder 70% of those polled want it re-nationalised.

  • Daniel Maris

    The way forward is to bring in a centrally funded green energy infrastructure project. The operational costs of green energy are low and combined with insulation investment will result in much lower bills. Once we have the infrastructure in place, people will benefit from the lower costs. This approach could also be used to develop community based energy co-operatives that would benefit from their local wind turbines. Most of the investment could be paid for through stamp duty, a relatively painless approach, since people will get a direct benefit (e.g. PV panels on their roofs or shares in energy co-ops).

    • Alexsandr

      no. we let the energy companies make the decisions on cost. All the government do is f*ck things up.

      • Daniel Maris

        Really? The wholesale price for electricity in Germany has fallen from over €80 per MWh at peak hours in Germany in
        2008 to just €38 per MWh now (2013) according to the economist. That has been a result of the government’s green energy programme.

        • wycombewanderer

          They’re importing coal from across the globe to burn in Germany!

          Hardly green

  • Q46

    “The Government recently changed policy to encourage competition, simplifying tariffs. Since January, they’ve only been able to offer four tariffs.”

    So by reducing choice this increases choice.

    I see.

    If consumers can pick through the umpteen ISP, mobile phone, satellite, tariffs not to mention supermarket offers, why do people think they cannot do the same for energy?

    The problem with the energy market is: a) Government subsidising its favourites.. wind, solar, nuclear, b) Government interference in selling and pricing, c)Government regulation.

    Not a thing Government touches works. I thought we knew that.

    Get Government out of the energy market.

    • HookesLaw

      Well currently an online deal, for example, is considered as a separate tariff,
      so it’s unclear just how much cheaper it is than a deal where you get bills by post. Now it will be a straight discount off one of the 4 tariffs.
      But rest assured there will still be different deals for different parts of the country.

      I do not take your point about interference. The govt is charged with securing supply and in for instance the case of nuclear it agrees a rate to encourage the investment.

      • Tom Tom

        There are different deals regionally because of TRANSMISSION costs – you know pipelines and wires……it is why National Grid and Warren Buffett’s company YEDL and Li Kai-Shing’s Northern Gas Networks have such a lucrative business

        • HookesLaw

          Yes – surprisingly I know the reasons why there are different local costs. That will teach me to cut back on the sarcasm.

          I also think it a bit fatuous to compare a swathe of over complex energy tariffs with mobile phone rates.

    • Michael Mckeown

      The thing is with your tv and phone and satellite you do have actual choices whereas with gas and electric it is literally just gas and electric so really there is no need for any gas tariffs and perhaps a peak and off peak electricity tariff.

      • Alexsandr

        i use wood and coal in a multifuel stove. There is a choice beyond gas and electricity

        • Michael Mckeown

          But the likes of E-On aren’t selling you wood.

          • Alexsandr

            no, but i am not buying all my energy from the big 6 And I am buying less gas than I would if i used the gas central heating and a gas fire

        • Tom Tom

          Which do you use for your laptop then, coal or wood ?

          • Alexsandr

            hamster in a wheel with a small 12v dynamo.

  • BarkingAtTreehuggers

    The energy sector is bloated with middlemen. Remove them and let communally-owned concerns deliver a competitive product, giving them the far-reaching powers to make decisions in the community with regards to how that energy is sourced.

    • Tom Tom

      Yes they can build power stations, at how many billions each ?

      • BarkingAtTreehuggers

        I’ve got a mate with a drill, a rather big drill I admit.
        He drills holes everywhere and has done so for decades.
        Pffffft, and the gas comes out!
        Why is he not in work and now scrounging benefits?

      • telemachus

        The Government can
        (build the power stations)
        And then sell us the energy to us
        Use Govian Social Engineering principles to let the energy companies wither
        I would rather Ed Balls in the Treasury got any profits from me than European shareholders driving Mercedes Benz Cars

        • BarkingAtTreehuggers

          It’s too late m’lud – all is already in foreign hands.
          Now shale is about to go the same way – to pay for the failures in the Mile that is square.
          The regions always pay for the mistakes of the centre, no difference in this instance.

        • saffrin

          Looking at the state of ED Balls he’d spend all the money on pies.

  • HookesLaw

    Profits in 2009 from household supply were approx £200 million – in 2012 they were £1200 million.
    The reality is that three of the Big Six’s household supply operations were actually loss-making four years ago (admit offgen). So the 200 million figure is articicially low when working out percentages.

    However it does seem that these figures – generously published by the Labour Party and uncritically parroted here by the supposedly objective Spectator – are inaccurate in that they are gross not nett. That is tax and investment have to come out of these figures.

    By Labour’s own calculations £1.2 billion profit split across ~ 24 million households equates to profit of around £50 per household per year. Take the average energy bill – and work out the profit margin on that and it hardly works out as massive.

    • Daniel Maris

      You seem to have learned nothing about the vertical integration of the industry. The £50 per household is what appears on the balance sheets – but further and usually much bigger profits are hidden in the price they pay their associate companies for fuel etc.

      • Tom M

        The energy companies might well be vertically integrated and make a profit margin at each level. Surely that cannot be a surprise or indeed unexpected.
        If these levels weren’t integrated they would belong to another company who would take their cut just the same (and perhaps more).
        When people say that we are being ripped off I suggest they check out the prices paid across Europe for electricity and gas. We are not in any way near the top of the price range (as a matter of fact Denmark, home of green energy, is up there amongst the most expensive). One of the biggest causes of high energy prices was the devaluation of the pound by some 25% around 2008.

        • Tom Tom

          Vertical Integration allows Profit to be hidden in COSTS

          • Tom M

            You still haven’t got it have you? Vertical integration or not these levels would belong to and be operated by someone who would charge. The cost will always turn up on your bill. It would always be “hidden” in exactly the same way the costs of your cabbage at Tesco’s doesn’t indicate the various “levels” of charges applied to get it into the supermarket.
            If it suits your perception of the world call it a conspiracy if you want but it happens all the time with everything you buy.

      • HookesLaw

        I am quoting the Labour party’s figures and research which say 1.2 billion profit spread across 24 million homes. Where does vertical integration or balance sheets come into it?
        Profit = 1.2 billion
        Homes =24 million (ish?)

    • Tom Tom

      H O L L Y W O O D A C C O U N T I N G

      • HookesLaw

        Where is the maths wrong. have I missed a nought? £50 profit before tax and investment on a house’s annual energy bill.

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